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Welcome:
Lesson 1:

Introduction

Here we go!
In this section we will list any
This chapter is designed to familiarize you with Point and Figure Charts, we call upcoming live online classes
these "attributes" in this University. For those that are familiar with PnF and
specifically covering this chapter.
have used it in their investment research, you will know most of these terms
and concepts. However, it is good for a review as terms used in this chapter
will be repeated throughout the University. This chapter does include vital
information for basic charting and it shouldn't be skipped over as it is a
foundation for the following chapters. Chapter 1 is the base and each chapter
following is a vital component in understanding the big picture, how to put it all
together. One cannot understand the whole without knowing the parts.
Lesson 1 Contents:
Part 1:

Attributes of a Chart

Part 2:

Attributes
Box Scales
Dates and date lines
Trading bands
Numbers adn letters for the months
Part 3:

Chart Basics
Three box reversal
Box scale tables
Flow chart of investing
Examples of how to chart
Support Lines

Support Lines
Bullish Support Line
Bullish Resistance Line
Bearish Resistance Line
Bearish Support Line

Test yourself at the end of the chapter to sharpen your skills.
If you have any questions, please check the "Questions" section to see if it has already been answered. If it has not,
then click on the question mark icon below to email us your question. It will be answered shortly (within two business
days).
Next

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Welcome:
Lesson 1:

Part 1. Attributes of a Chart

Here is a Point and Figure Trend Chart with the characteristics pointed out and described. We will go into
detail as we continue through the first lesson.
A Point and Figure Trend Chart:
The trend chart depicts the price action of the stock. We call it the trend chart because of the support and
resistance lines that determine whether a chart is above or below trend. If someone say's "...the trend chart"
you know they mean this type of chart, this is different from an RS chart for example.

Key Points:

* X's mean the chart is rising
* O's mean the chart is declining.
* Never will you see X's in a column of O's or vice versa.
* Each column must have at least three X's or three O's.

You will notice some
columns have
numbers or letters in
place of an X or an O.
(In blue). These depict
months:
1 = January
2 = February
3 = March
This continues until
October in which...
A = October
B = November
C = December
This is because two
digit numbers wouldn't
fit in the box.

Value / Price column
Trading Bands:
Trend Lines:

The vertical axis is the price scale. From this you can determine the value of each
row.
These are hyphenated as "Bot" for the bottom of the trading band, "Med" for the
medium of the trading band and "Top" for the top of the trading band. Applications of
the the Trading Bands will be discussed in later chapters.
The Bullish Support Lines and Bearish Resistance Lines help us determine the
trend of the stock.

Next

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00 0. http://208.20.00 6.0 box 120.00 108.25 4.50 box 9. Here is a guide to those changes.00 35.00 4.75 3..25 box 5.100.50 8. Examples: What the price columns would look like in the various box sizes: 0.00 36.00 Notice how the increments work.50 Box Size 0.0 box 40.75 4.00 .com&lesson=1&page=3 (1 of 2) [4/19/2001 8:28:57 PM] .exe/D:\foxa. Value/ Price Column The scale for a point and figure chart is on the left hand side or the vertical axis.00 110.00 38.00 116. how the value changes and is determined by the box size.00 118.50 21.. Price of Stock Box sizes: Changes are determined by the price range of the stock or index.00 112.50 4.00 39.149.00 .00 + 102.25 5.00 37.00 1.00 34.PnF University Welcome: Lesson 1: Part 2.5.00 2.00 1.00 0. By looking at the price increments of the scale we can determine the box size at that level. Chart Basics: Details of the individual chart characteristics.wuniv?email=neowaver@hotmail.65/cgi-bin/foxweb.00 3.00 0.108.50 7.00 7.50 6.00 114.00 8.00 2.00 .

00 box 22.00 0.00 19.com&lesson=1&page=3 (2 of 2) [4/19/2001 8:28:57 PM] .00 102.PnF University Crossing Box Sizes: There are times when a stock will cross several box sizes.75 4.0 to 2. Here is an example of what that price column would look like: 0.00 98..wuniv?email=neowaver@hotmail.50 change here 5.00 18.108.50 4.50 19.00 100.00 97.50 box 6.00 change here Next http://208.00 1.00 99.00 4.00 5.149.00 96.50 to 1.0 box 104..65/cgi-bin/foxweb.25 4.00 change here 20.00 21.50 18.25 to 0.exe/D:\foxa.

you can not go wrong. Constructing A Chart: Rules for Charting: Learning how to update a Point & Figure chart is fairly simple but there are a couple of ground rules you must first understand. the Point & Figure chart uses the high price and the low price for each trading day.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. a minimum of three boxes are required to change columns. Finally. the chart continues in the current column if possible. Flow Chart for PnF Charting: Here is the Flow chart for PnF charting.PnF University Welcome: Lesson 1: Part 2. Next http://208.69/cgi-bin/foxweb.108.149. First. Second. Third. Following the flow chart we will discuss each question. a chart can only move in one direction a day.com&lesson=1&page=4 [4/19/2001 8:29:42 PM] . These four rules of charting are most easily understood by looking at them in a Flow Chart format. If you meticulously follow this flow chart.

PnF University

First Flow Chart Question: "Continue Current Colunmn with X or O?"
Whichever column the chart is in, you will remain in that column as long as the stock
continues moving in that direction. If the chart is currently in a column of X's your first
question is, "Did the stock rise one full box or more on the chart?". If it did move one full
box, then you record that move by adding another X to the column. You are now done
updating that chart for the day.
As mentioned above when charting, you are concerned with the price which causes the
chart to continue in the current column. In other words we are establishing an action
point. If the chart is in a column of X's, you are looking at the high price of the day,
rounding down to the next whole number. If the chart is in a column of O's, you are
looking at the low price of the day, rounding up to the next whole number.

For example, a stock has a high
of 28 7/8. For charting we would
use this at 28

When looking at the low, you go
up to the next whole number.
Using the same example, a
stock has a low of 28 7/8. You
would read this as a low of 29.

29
28
27
26
25
32
31
30
29
28

X <-28 7/8 is not high enough
X to close the 29 box.
X
X
O
O
O
O <-28 7/8 is not low enough
to close the 28 box.

For the smaller box sizes you still round to the "whole" numbers in the box.
For example, in the .50 box
size if a stock trades to 10.63
you would mark up to the
10.50 box not the 11.00 box.

With the .25 box size if a
stock trades to 4.73 for
instance, you would mark the
boxes to 4.50 not 4.75.

11.00
10.50 X <-10.63 is not high enough
10.00 X
to mark up to the
9.50 X
11.00 box
9.00 X
5.00
4.75
4.50 X <-4.73 is not high enough
4.25 X
to mark up to the
4.00 X
4.75 box.

Second Flow Chart Question: "Does Stock Reverse Columns on

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Chart?"
If the answer to the first flow chart question was "no", then we must determine whether
the chart reverses direction thus changing columns. We use a three box reversal
method to determine a reversal.
Three Box Reversal Method:
The price action of a stock is marked by two different columns, by X's for the price
moving up and O's for the price moving down. In other words, X's are for demand and
O's are for supply. To move from one column to the next, from X's to O's or vice versa,
Point and Figure charts require a three box reversal. The stock must be able to move
three boxes before it can change columns. If a stock is in X's at $25 then it must fall 3
boxes to reverse into a column of O's. This would be $3 since the scale of the chart at
$25 is $1 per box and it must reverse by three.
Reversal Requirements:
5.00 0.75 pts.
0.00 to
20.00 1.50 pts.
Use this as a guide.
5.00 to
100.00 3.00 pts.
20.00 to
200.00 6.00 pts.
100.00 to

Examples:
Here are examples of the three box reversals for the different box sizes.
0.00 to 5.00 chart (0.25 box)
As shown in this example, the price
had to move down or up a total of 0.75
points to complete the three box
reversal.

The reversal up, a move from 3.50 to
4.25, is a total of .75 points.
A move down from 4.50 to 3.75, is a
total of .75 points. As per the guide
above that is the amount needed for
the reversals.

5.00 to 20.00 chart (0.50 box)
As shown in this example, the price
needed to move 1.50 points down to
make a full reversal.

The reversal up, a move from 16 to
17.50, is a total of 1.50 points.
The reversal down, a move from 18 to
16.50, is a total of 1.50 points.

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20.00 to 100.00 chart (1.0 box)
As shown in this example, the stock
needed to move 3.00 down to make a
full reversal. See how on this chart a
larger point move is needed than the
previous two.

102.00 + chart (2.0 box)
As shown in this example, the stock
needed to move 6.00 points down to
make a full reversal.

The reversal up, a move from 106 to
112, is a total of 6 points.
The reversal up, a move from 24 to 27,
is a total of 3 points.

The reversal down, a move from 114 to
108, is a total of 6 points.

The reversal down, a move from 28 to
25, is a total of 3 points.

If the stock does not meet the criteria to reverse (described above) then there is not
action on the chart for that day. Unlike a bar chart, a Point and Figure chart won't
necessarily make a movement everyday. If the price action of the trading day does not
continue the chart in its current direction (flow chart question 1) or change columns
(flow chart question 2), no mark is made on the chart.
For example, on the 1 box
chart:
Let's say a stock trades a high
of 32.50 and a low of 29 7/8 and
the column of X's are at the 32
level.
We'll go into more detail about this in a
little bit.

33
32
31
30
29

X <-32.50 Isn't high enough
X
to add an X.
X
X <-29 7/8 isn't low enough
to add O's

Next

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The stock managed to add another O to the chart because it traded to 41.975 filling the 42 box..25) it did trade as high as 47 so we can add another X to the column.com&lesson=1&page=6 (1 of 2) [4/19/2001 8:31:00 PM] . If it does an O is added no matter how high the stock trades. The low was 43. Next Trading Day High 47.125 Low 41. You look at the high and low to determine if you can continue in the same column or if you have enough for a three box reversal.65/cgi-bin/foxweb. it is enough for the three box reversal.63 Low 43.exe/D:\foxa. It has to be 47 even.975 We are now in a column of O's so we look first to see if the stock trades low enough to add another O. http://208. Beginning Chart High 47. In fact it adds four boxes (O's).975. Looking at the trade information (High 47.63.975 Low 43 Each day is the same process. The high needed to add another X would be 48. but the high was only 47. That is all to be done for the day. not enough. Next Trading Day High 50. Low 43.. not 46.PnF University PnF Chart Examples: Here we demonstrate how a chart builds over a period of trading days.108.125.149. So now you look to see if it moved low enough for a three box reversal at 44.999 but 47.25 The top X is at the 46 level. We do nothing with the move to 50. The first thing to determine is whether the stock traded as high as 47 to add another X.wuniv?email=neowaver@hotmail. so yes.

. Now we check if it traded high enough for a three box reversal up into X's at 45 and it did.. Next http://208.exe/D:\foxa.wuniv?email=neowaver@hotmail.65/cgi-bin/foxweb. Even though it traded into the 41 range it did not hit 41 even so therefore. no additional O.149.PnF University Next Trading Day High 50.45 Again the same procedure. it traded as high as the 50 box.108. We look to see if the stock traded to 41 to add another O and if not did it trade high enough for a three box reversal up.50 Low 41.com&lesson=1&page=6 (2 of 2) [4/19/2001 8:31:00 PM] .

They are like brick walls.com&lesson=1&page=7 (1 of 3) [4/19/2001 8:32:38 PM] . http://208. The angle will always be a 45 degree angle. you must first have a buy signal off the bottom. It is uncanny how a stock will follow along either the Bullish Support or Bearish Resistance Line.6/cgi-bin/foxweb. A stock is bullish if trading above the bullish support line and bearish if trading below the bearish resistance line.PnF University Welcome: Lesson 1: Part 3: Support Lines One of the most important guides you have in Point and Figure charting is the Bullish Support or Bearish Resistance Lines.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. Go to the lowest column of O's and begin drawing a line up at a 45 degree angle. Stocks will often come right down to the bullish support line and then bounce off. Serves as a guide for the up trend of a stock. Bullish Support Line.108. Has a habit of acting like a brick wall.149. To draw the support line.

The first Bullish Support line will always serve to be the long-term trend line and may very well come into play years later. These guidelines will help you do that. We will typically give a stock the benefit of the doubt if it gives a sell signal while it is trading close to the Bullish Support Line.the angle for the Bullish Support Line (also known as the BSL) is always 45 degrees. we go to the lowest column of O's in the chart pattern and begin drawing a trend line. you can go to the bottom O of that new distribution and draw another trend line.6/cgi-bin/foxweb. Once of the main keys to successful investing is avoiding the big hit.PnF University Once a stock has formed a base of accumulation and gives the first buy signal. Starting with with the box directly under that column of O's and diagonally connecting each box upward in a 45 degree angle. http://208. When a stock rises significantly above this trend line and gives more buy signals. unlike bar charts. Traders often initiate a long trade when the stock has declined near the Bullish Support Line because the stock is then close to the stop-loss point. never connect prices .149. short term trend lines can be drawn.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.108. The most important characteristic of the Point and Figure method is its clear guidelines for entering and exiting a trade. This method. These shorter term trend lines serve as visual guides for you.com&lesson=1&page=7 (2 of 3) [4/19/2001 8:32:38 PM] . Once a stock is well above the long term bullish support line. The short-term trend lines can also be valuable to the trader in identifying the direction of stocks.

it not only gave a double bottom sell signal but also violated the Bullish Support Line. There is no such thing as the line being a little penetrated. *A trend change is when the trend chart turns from negative to positive or vice versa. secondary lines can be very helpful.com&lesson=1&page=7 (3 of 3) [4/19/2001 8:32:38 PM] .108. it is critical event and a strong sign to sell the stock. We will go over buy and sell signals in Lesson two.PnF University Example of a chart trading above its BSL. notice the gap in space between the X's and O's and the BSL.149. Not all stocks trade high above the original BSL and the original will be all that is needed but in the case of high flying stocks. See how the secondary line would work for traders? It gives a closer support line than the original BSL and with that a closer stop on trades. supply took control of the stock. To qualify as a penetration. Below. As long as the stock trades above the BSL it is a positive trend but once it pierces that line the trend becomes negative.6/cgi-bin/foxweb. Next http://208. When the stock penetrates the trend line (the BSL) and simultaneously gives a sell signal.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. The violated support line was the key sign there was a high probability that the trend had changed. the trend line must be violated and not just touched. It is or it isn't. This correlates to the Bullish Support or Bearish Resistance Line. We will draw a secondary BSL from the area of accumulation around 18. Soon after. When the stock hit $21. the stock maintained the trend line all the way up from $15 to $25.

A wall of O's is usually that last down move in the stock from which it begins to bottom out. Typically.64/cgi-bin/foxweb. The boundaries of the Bullish Support Line and the Bullish Resistance Line form a trading channel. Bullish Resistance Line. Here the Bullish Resistance Line is drawn after the Wall of O's. Stocks will often rally right up to the bearish resistance line and then bounce off. Has a habit of acting like a brick wall. Remember. beginning with the empty box above that top X. This is the point where demand begins to take the upper hand. short term resistance lines can be broken. Go to the column of X's right next to the wall of O's and begin drawing your trend line.PnF University Welcome: Lesson 1: Part 3: Support Lines cont.108. To draw the resistance line. Go to the highest column of X's and begin drawing a line down at a 45 degree angle or a 135 degree angle.com&lesson=1&page=8 (1 of 5) [4/19/2001 8:33:26 PM] . The Bullish Resistance line is drawn by moving to the left of the last buy signal and going to the first wall of O's.149. a stock will encounter resistance as it moves to the Bullish resistance Line though this line may have to be drawn a number of times. The bearish resistance line must be violated and not just touched in order to turn the trend positive. This line will be a 45 degree angle as is the Bullish Support Line. http://208. Exact opposite of the bullish support line. It serves as a guide for the downtrend of a stock. you must first have a sell signal from the top. Bearish Resistance Line. above the column of X's beside it at the 21 dollar box.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. it is not the first column of O's but the first wall of O's. Once a stock is well below the bearish resistance line.

PnF University We typically prefer not to go long when below the Bearish Resistance Line. The line. a stock must be on a buy signal to penetrate the Bearish Resistance Line. Again. http://208. The Bearish Support Line.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.64/cgi-bin/foxweb. Then move the the first column of O's next to it and begin drawing your support line down from the empty box below the last O. like the Bullish Support Line. Be wary of buy signals that come from just below this resistance line as they tend to be false or best suited to traders. The Bearish Support Line is the reciprocal of the Bullish Resistance Line and is drawn by moving to the left of the Bearish Resistance line to the first all of X's. Stocks that are moving up to this line typically find formidable resistance there. Also. can be used as a guide to identify where any decline might be contained.com&lesson=1&page=8 (2 of 5) [4/19/2001 8:33:26 PM] . which will automatically be a 135 degree angle by connecting the diagonal boxes. not to the next column of X's but to the first wall of X's. This line. Short sales can be initiated in weak stocks when the underlying stock rallies up to the resistance line but is still below it. can be as strong as a brick wall. This is the optimum point to sell short on any of the bearish chart patterns.108.149. We say a stock is bearish when it is on a sell signal and below the Bearish Resistance Line.

With the DWA database only the primary support lines are shown. Example of a long term Bullish Support Line. 61 60 59 58 57 | | --------+---------------------------------------------------+---X | | X | X | X | X O X | X 61 ----------------------60 O X 59 O X O 58 O X O 57 http://208. As the stock rises to the resistance level. Movement down to the Bearish Support Line is likely to cause bottom fishing as investors create demand supporting the stock at that level. form a channel that the stock can be expected to trade in. investors who have been stuck holding the declining stock will elect to sell on rallies .PnF University The Bearish Resistance Line and the Bearish Support Line.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.108.149.com&lesson=1&page=8 (3 of 5) [4/19/2001 8:33:26 PM] - .64/cgi-bin/foxweb. in combination. The Bullish Support and the Bearish Resistance Line.All the lines together.

----------------+---------------------------19.PnF University 56 | X X O X O X X O X O 56 55 --------+---------------------------------------X O X O X O X O X O --2 -----------.X O X --+---------------* ----------------------------------+---------------------------30 29 X O X | * | 29 28 X B | * | 28 27 O X | * | 27 26 O X | * | 26 25 O X ------+-----* --------------------------------------------+---------------------------25 24 A X | * | 24 23 O X | * | 23 22 O X * | 22 21 O X * | | 21 20 O X --* --+---------------------------------------------------+---------------------------20 19.149. -----------------| ------------------------55 * | | | 54 * | | | 53 * | | | 52 * | | | 51 --------* ----------| --------------------| ----------------------------| ------------------------50 * | | | 49 X * | | | 48 X O * | | | 47 X O * | | | 46 <--Break of BSL | --------------------| ----------------------------| ------------------------45 O * | | 44 http://208.5 O X * | | 19.5 19.0 O * <--Bullish Support Line is created.Med55 54 | X O X O X O X O X O 54 53 | X B X C O | 1 X O 53 52 | X O | O X * 52 51 | X X X | O X <--Bounced here 51 50 --------+-----------X O X O X ------7 --X ------X ----------+-O * ----------------------50 49 | X O X O X O X O X O X | * 49 48 | X O X 5 X O X O X O X * 48 47 | X O X O O X X O X O X X * | 47 46 | X O O X O X O X O X O X * | 46 45 -------+-----------X --------O X O X O X O A O X ----* ----+---------------------------45 44 | X 4 O X O 8 X O X O X <--Bounced here.108.com&lesson=1&page=8 (4 of 5) [4/19/2001 8:33:26 PM] . 44 43 | X O X O X O X 9 X O * 43 42 | X O X O X O O * 42 41 | 3 O X 6 * 41 40 --------+-------X O ------------------------* --------------+---------------------------40 39 * X X * | 39 38 * X O X * Notice how the stock has 38 37 * X O X X * traded above the BSL and 37 36 Break ---->X O X O X * has bounced a couple of times 36 35 of BRL X --1 O X O X ----------------* ------------------------+---------------------------35 34 X O X O X 2 * | 34 33 X O X O * | 33 32 X C X * | 32 31 X X O | * | 31 30 .64/cgi-bin/foxweb.0 Example of a long term Bearish Resistance Line: 57 56 55 54 53 52 51 50 49 48 47 46 45 44 | * ---------------X X X X O X B O X X C | -----------X --| X X | X O X | X O X | X A * ---X --9 ----* | X O X * | | | * O O 1 O O O O O 2 O | | | 57 | 56 <--Bearish Resistance Line created.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.

5 ----------------------------| ----O ------------------15. * | 31 ----* ----------------------| ------------------------30 * | 29 * | 28 * | 27 * | 26 ------------6 * ------------| ------------------------25 5 O <--Bounce off here.5 ----------------------------| ------------------------13.5 | | 16.0 --------------| ----------------------| 16.0 X O X O O X O X O X 16.0 --------------| ----------------------| 11.PnF University 43 * 8 O X * | 3 | | 42 O X O * <--Bullish 41 O X * Support | 40 -O * -------Line O --------X ------| 39 * | O X X O | 38 | O X O 6 O | 37 | O X O X O | 36 | O O X 7 | 35 ---------------| --------O X --X O ----| 34 | O X O 5 8 | 33 | 4 X O X 9 | 32 | O O X O | 31 | O X O | 30 ---------------| ------------O --O ----| 29 | O | 28 | O X 27 | O X 26 | A X C 25 ---------------| ----------------O X O X 24 | O X O X 23 | O B | 22 | | 21 | | 20 ---------------| ----------------------| 19.0 | 12.5 X O X --------------------O | 1 X O X ----------------16. 24 X O * | 23 X 9 * | 22 2 X O X * * | Top21 ----X O X --X O X O X --X * <--Bounce off here.5 | | 12.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.0 --------------| ----------------------| 14.0 --------------| ----------------------| 17.5 | | 19.5 | | 15.0 | 13.5 ----X O 3 O X O ------O X O | ----* ------------------18.0 --------------| ----------------------| 18.0 --------------| ----------------------| 12.5 ----------------------------| ------------------------11.5 ----X O X O X A X O X O X O | * ----------------------19.0 --------------| ----------------------| 15.0 X X O X 4 X O X O X * Med17.64/cgi-bin/foxweb.0 O | O O X 15.0 Next http://208.108. -20 X O X O X O X O X O X O * 19.5 | | 18.5 X O X O X O ----------C --O X O X --2-----------------17.5 | | 14.5 ----------------------------| ------------------------12.0 ------------9 | 9 ------------------9 | * | | * | ------* ------------| * | * | * | * | ----------------* --| * | * | | --------------------| 5 | 3 O X | O X O X O | O X O X O | 1 --6 --8 ----------| O | O | O | O | --------O ----X ----| O X O | --------O ----X O --| 9 X O | --------O ----X O X | O X O X O --------O X --B C X O O X O X O O --------O X O X ----O O X O X 1 --------O X O ------| O X | --------O X --------| O X | --------O A --------| O X | --------O X --------| O | 9 ------------------| * | 43 | 42 | 41 ----------------------------| ------------------------40 | 39 | 38 | 37 | 36 ----------------------------| ------------------------35 * - - See how the stock continues to follow the Bearish Resistance Line down and bounces off the line a couple of times.5 | | 13.5 ----------------------------| -------------------.com&lesson=1&page=8 (5 of 5) [4/19/2001 8:33:26 PM] .Bot14.0 | 14.0 --------------| ----------------------| 13.0 | 11.0 X O X O X O X O B X O | * 18.149.5 | | 11.5 | | 17.

and determine the direction of the chart. I found this to be extremely helpful and a fun exercise to work on daily. This becomes almost intuitive in time.see what the chart was telling you ahead of time..65/cgi-bin/foxweb.wuniv?email=neowaver@hotmail. The change of box size is always something that takes a little getting used to and it is highly advisable that you continue to do your own hand charting even after completing this University.com&lesson=1&page=9 (1 of 2) [4/19/2001 8:34:47 PM] . Without a sound knowledge of this information it will be difficult to understand the following lessons and the more in depth features of Point and Figure. and see what the chart looked like before the major move. If you still find the concept confusing review the lesson again and of course read Tom Dorsey's book "Point and Figure Charting" in chapters 1 and 2. His book has examples to learn from and also his personal experiences. Another neat thing to do is pull up a chart on the DWA database.. It is important that you understand fully the workings and rules of three box reversals. the box sizes and the flow chart of investing.exe/D:\foxa. Use the DWA database to print charts to keep by hand. You will in time be able to look at a chart with high and low of the day and even during the trade day. The better you familiarize yourself with three box reversals the more comfortable you will be with your skills in PnF charting. Part 1: Attributes of a Chart Attributes Box Scales Dates and date lines Trading bands Numbers and letters for the months Part 2: Chart Basics Three box reversal Box scale tables Flow chart of investing Examples of how to chart We will now test you to find your comprehension of the subjects discussed in Lesson 1.149. This way you can get a feel of the chart prior to large swings either up or down . Next http://208. one that has made a significant move during the trade day. basic charting concepts and the three box reversal method.PnF University Welcome: Lesson 1: Wrap Up Lesson 1 is dedicated to familiarize you with Point and Figure charts.108. Getting the "feel" of the charts will build your confidence as well.

exe/D:\foxa.wuniv?email=neowaver@hotmail.65/cgi-bin/foxweb..108.149..com&lesson=1&page=9 (2 of 2) [4/19/2001 8:34:47 PM] .PnF University http://208.

65/cgi-bin/foxweb.PnF University Testing for Lesson 1: Attributes of a chart 1) Type the appropriate number or letter into the provided field for each corresponding month: October: September: August: June: November: March: December: 2) Identify a specific attribute of these charts: 83 82 81 80 79 78 77 76 75 74 73 72 71 70 * X * X O O X O O X O O X O O X O O --O O O O O ----O <--This item here is.? * X * B * X * X X --------X X X X X O X O X X O X O X X O O X X ----O X The Bear Reversal Line I-95 North The Bearish Resistance Line A Constellation The Bullish Support Line http://208.html (1 of 3) [4/19/2001 8:35:34 PM] .email=neowaver@hotmail.com&lesson=1&doc=test..exe/D:\foxap.149...108..

00 d: 0. A chart can move in more than one column in a day.00 .? * The Bearish Resistance Line I-95 South The Bullish Support Line Positive Trading Band A Bullish Terrier * --------------Med 3) Match the box size to the price range by typing the appropriate letter into each field.00 .00 0.email=neowaver@hotmail.. You may use the same answer multiple times: Box Size 2. It is possible for a chart to have no action during the trade day yes no d. yes no http://208.00 Price Range a: 20.25 0.75 0..149. The Low price of the day and the close price of the day are used to construct a chart.00 .exe/D:\foxap.5.50 1.108. The High and Low price of the day is used for constructing a PnF chart yes no c.html (2 of 3) [4/19/2001 8:35:34 PM] .100 b: None/ NA c: 5..20.00 e: 102 + 4) Constructing Charts: Answer Yes or No to the following… a..PnF University 88 87 86 8 84 83 82 81 80 79 78 77 76 75 74 73 72 O O O O O O O O O O O O * X X 1 X X X X X O X X O X X O X X X X * X * * O O O O O O O O O X X X X X X X * X * X -. yes no b.65/cgi-bin/foxweb.* -----Top X * * <--This item is.com&lesson=1&doc=test. X = Supply yes no e.

yes no Flowchart of Investing: If a chart is in a column of X's. Up one row to $29. The action on the chart would be.email=neowaver@hotmail. The action on the chart would be. yes no If the chart is in O's.149.. you first look… If a chart is in X's at $28 and the low for the day is $24.. The chart will reverse to the upside No change on the chart. the high for the day is $21 7-8 and the stock closed at $21. Reversal to $24.exe/D:\foxap.108.PnF University f.... you first look… … to see if the chart reversed down into O's? yes no … at the High of the day to see if an X is to be added? yes no … to see if the stock declined one full box during the day? yes no … for the possibility of a reversal up into X's if the stock rose 20 points. Score Test http://208.5. the high for the day is $29 and the stock closed at $24..html (3 of 3) [4/19/2001 8:35:34 PM] .65/cgi-bin/foxweb. If a chart is in O's at $19 1-2 and the low for the day is $19 1-8. The chart will fall to 19. A chart must be updated and a new column added every day. No change on the chart.com&lesson=1&doc=test.

140 -----X --X ---------Currently the chart is in a column 138 X O X O of Os down to 116.A new column of O's down to 60 67 66 65 64 63 62 61 60 59 58 57 56 55 54 --------------------------* X * X <--? ---X---X-O-*-----------X--X O X O * X X X X O X O X O X O X O X O X O X O X O X O X O X O X O X O X O X O X O O X-4-X-5---O-----X-9-------O <--? O X * 6 X X * O * O X O 8 * * O X O X * * O 7 X * *-------------O-*----------* Practice Chart 2 point box.=neowaver@hotmail.75 You have the following options: . There are points on the charts marked with a hyperlink giving you several possibilities.125 $116 You have the following options: .There is no action on the chart today . Here's today's data: High Low Last $128 $114.exe/D:\foxap.67/cgi-bin/foxweb.A new column of X's up to 128 136 134 132 130 128 126 124 122 120 118 116 114 112 110 X X X -----X X X X X -----X X X X -X O X X O X -X O X O O O O X O X O X O --O O O O O ----O O O ----O 8 ----O ------X <--? X X X X O X X O X-X O X X O X O <--? X X ----- http://208.149.. You will be told if your answer is right or wrong and given another opportunity to try again if wrong.. 69 Currently the chart is in a column 68 of Xs up to 64. Here's today's data: High Low Last $66.html (1 of 2) [4/19/2001 8:36:52 PM] .com&lesson=1&doc=exercises.108. Practice Chart 1 point box. First read the question then select the appropriate action.There is no action on the chart today .One O is added to 114 .00 $60.00 $65.PnF University Exercises for Lesson 1 Below are a three fun excercises in charting.Two X's are added to 66 .

5 12.5 14. 15.5 Currently the chart is in a column 15.67/cgi-bin/foxweb.0 12.5 9.0 9.5 13.5 8.=neowaver@hotmail.125 $12.There is no action on the chart today .149.0 of Xs up to 13.One X is added to 14 .108.5 point box.0 8.0 7.5 10.0 X <--? O * X O ----* ------------------X O O * X O O X ------* --------------X O <--? O X O * X X O X O X ------* --X O X --X -O X O X O * 7 O 8 O X O X O X O X ------X O X O X -O X O X O X O X X O X O X O X O X 5 X O X O X O --O * -O X 4 X O X O 6 O X * * O --O X O * O X O X * -------O * * O X O * --* * ------O --* ------------ http://208.5 11.html (2 of 2) [4/19/2001 8:36:52 PM] .5 7.. Here's today's data: High Low Last $13.0 13.0 11.95 $12.A new column of O's down to 12 14.5.PnF University 108 106 104 X O X X O X O Practice Chart .exe/D:\foxap.0 10.5 You have the following options: ..com&lesson=1&doc=exercises.

com&lesson=1&doc=questions.149.exe/D:\foxapps\f.mail=neowaver@hotmail..67/cgi-bin/foxweb..html [4/19/2001 8:38:22 PM] .PnF University http://208.108.

exe/D:\foxap.108.html (1 of 3) [4/19/2001 8:38:59 PM] ..com&lesson=1&doc=test..email=neowaver@hotmail...149.PnF University Testing for Lesson 1: Attributes of a chart 1) Type the appropriate number or letter into the provided field for each corresponding month: October: September: August: June: November: March: December: 2) Identify a specific attribute of these charts: 83 82 81 80 79 78 77 76 75 74 73 72 71 70 * X * X O O X O O X O O X O O X O O --O O O O O ----O <--This item here is.? * X * B * X * X X --------X X X X X O X O X X O X O X X O O X X ----O X The Bear Reversal Line I-95 North The Bearish Resistance Line A Constellation The Bullish Support Line http://208.67/cgi-bin/foxweb.

PnF University 88 87 86 8 84 83 82 81 80 79 78 77 76 75 74 73 72 O O O O O O O O O O O O * X X 1 X X X X X O X X O X X O X X X X * X * * O O O O O O O O O X X X X X X X * X * X -.? * The Bearish Resistance Line I-95 South The Bullish Support Line Positive Trading Band A Bullish Terrier * --------------Med 3) Match the box size to the price range by typing the appropriate letter into each field.00 0. yes no b.exe/D:\foxap.75 0.html (2 of 3) [4/19/2001 8:38:59 PM] .149.00 .. yes no http://208.* -----Top X * * <--This item is.5..00 Price Range a: 20.25 0..00 d: 0. X = Supply yes no e.50 1. The Low price of the day and the close price of the day are used to construct a chart. It is possible for a chart to have no action during the trade day yes no d. The High and Low price of the day is used for constructing a PnF chart yes no c.00 ..20.00 .00 e: 102 + 4) Constructing Charts: Answer Yes or No to the following… a.com&lesson=1&doc=test. You may use the same answer multiple times: Box Size 2.100 b: None/ NA c: 5. A chart can move in more than one column in a day.108.67/cgi-bin/foxweb.email=neowaver@hotmail.

the high for the day is $29 and the stock closed at $24.. you first look… If a chart is in X's at $28 and the low for the day is $24. the high for the day is $21 7-8 and the stock closed at $21.html (3 of 3) [4/19/2001 8:38:59 PM] . Up one row to $29.. yes no Flowchart of Investing: If a chart is in a column of X's..exe/D:\foxap. No change on the chart. A chart must be updated and a new column added every day. Reversal to $24. yes no If the chart is in O's. The action on the chart would be. The chart will fall to 19.149.. you first look… … to see if the chart reversed down into O's? yes no … at the High of the day to see if an X is to be added? yes no … to see if the stock declined one full box during the day? yes no … for the possibility of a reversal up into X's if the stock rose 20 points.108.PnF University f. Score Test http://208. The action on the chart would be. The chart will reverse to the upside No change on the chart.67/cgi-bin/foxweb.5.com&lesson=1&doc=test.email=neowaver@hotmail. If a chart is in O's at $19 1-2 and the low for the day is $19 1-8...

When it is all said and done. . if there are more sellers in a particular security than there are buyers willing to buy. the price will remain the same. You will learn more http://208. click here.wuniv?email=neowaver@hotmail. Over the years. (For history and more information about Dorsey Wright and Associates. A brief history of Point and Figure Charting along with some statistics on sector timing versus market timing.taken from the book "Point and Figure Charting" by Tom Dorsey. If buying and selling are equal. The chart above depicts the first style of Point & Figure charts. This is the irrefutable law of supply and demand. By attending this on-line University you are well on your way to becoming a craftsman.html (1 of 2) [4/19/2001 8:39:37 PM] . organized and sensible way of recording the supply and demand relationship in any particular security or sector.149. This form of technical analysis is unique and to become a craftsman requires study.com&doc=history.108. This methodology was prominent in the 1960's but then dropped out of favor..67/cgi-bin/foxweb..) The premise of Point & Figure charting is to provide a logical. Today. the price is located on the vertical axis and the "figures" are replaced with X's and O's. X's represent demand and are always moving up the chart while O's represent supply and are always moving down the chart. corn and asparagus cause price fluctuations in securities. On the other hand. they have evolved. if there are more buyers in a particular security than there are sellers willing to sell. then the price will decline.PnF University History of Point and Figure Technical Analysis. The same reasons that cause price fluctuations in produce such as potatoes. the price will rise.exe/D:\foxap.

http://208.149.wuniv?email=neowaver@hotmail.html (2 of 2) [4/19/2001 8:39:37 PM] ..PnF University about this in Lesson 1.com&doc=history..67/cgi-bin/foxweb.exe/D:\foxap.108.

149. BRL Bearish Resistance Line BSL Bullish Support Line A bullish percent chart reversing into X's from below the 30% level.67/cgi-bin/foxweb.html (1 of 3) [4/19/2001 8:40:08 PM] . Bearish Signal Series of lower tops and bottoms at least seven columns which Reversal is followed by a quick reversal up and double top break.108.com&doc=glossary.. Average Maintained for different universes such as NYSE and OTC as well as different sectors. Bull Alert http://208. A bullish percent chart which has reversed into X's from Bear Bear Correction Confirmed above 30%. Bear Confirmed Bearish Triangle Series of lower tops and higher bottoms followed by a double bottom sell signal. Base As a chart trades sideways without a definitive move either up or down we say it is creating a base. A combination pattern -.exe/D:\foxap.univ?email=neowaver@hotmail.PnF University Point and Figure Glossary: ABCDEFGHIJKLMNOPQRSTUVWXYZ Please email if there are any terms that need to be added to the glossary..the triple bottom sell signal followed by Catapult the double bottom sell signal.the triple top buy signal followed by Bullish Catapult the double top buy signal. BOT Bottom of the weekly distribution trading band. Bearish Resistance Line Used to identify a negative trend. A base creates a distinct area of support and resistance. Bear Alert A bullish percent chart which falls from above to below 70%. Bearish A combination pattern -. 10 Week Moving Stocks that trade above their own 10 week moving average. Shown on trend charts. A bullish percent chart in Bull Confirmed status that reverses Bull Correction into O's below 70%. 5 columns needed. A bullish percent chart which shows a column of O's exceeding a previous column of O's. A bullish percent chart in a column of X's that has exceeded the Bull Confirmed previous column of X's.

Horizontal Price A price count determined from the break of a large base formed Objective in the chart. after the Bullish Support chart has formed a bottom. Double Top When a column of X's exceeds a previous column of X's. NYSE Bullish Percent A primary PnF indicator.com&doc=glossary. used to identify a negative trend.. with importance placed on changes from negative to positive. Series of lower tops and higher bottoms that eventually breaks Bullish Triangle a double top. A proprietary mathematical calculation based on the 1 week Momentum moving average versus the 5 week. Shown on MED trend charts.67/cgi-bin/foxweb. Negative Trend When a stock is trading below its Bearish Resistance Line. This is one if our primary short term indicators and can be kept on any universe of stocks.149. OTC Bullish Percent A percentage of stocks taken from the NASDAQ stock universe that are on PnF buy signals. This line identifies whether the Line trend is positive or negative. Sell signal Where a column of O's exceeds a previous column of O's.Measures how well an index or security is performing relative to an index.exe/D:\foxap. Measures how well an index or security is performing relative to an index. in a specific universe. It is a 10 day High Low Index moving average of the following calculation -[(New Highs)/(New Highs + New Lows)]. Doesn't break support. This pattern must be at least 5 columns wide. Double Bottom When a column of O's exceeds the previous column of O's.108.. Percentage of stocks on the NYSE that are on PnF buy signals. Positive Trend When a stock is trading above its Bullish Support Line Pullback Relative Strength Where a chart reverses to O's after being in X's. Drawn at a 45 degree angle from the bottom most O.univ?email=neowaver@hotmail. Optionable A percentage of stocks taken from the optionable stock Bullish Percent universe that are on PnF buy signals. Dow Jones 20 Bond Average Our primary bond indicator symbol= DJBB High Low Index. Series of higher tops and bottoms at least seven columns which is followed by a quick reversal down and double bottom break. Resistance Line BRL. RS Relative Strength.html (2 of 3) [4/19/2001 8:40:08 PM] . Bullish Signal Reversal DJBB Dow Jones 20 Bond Average our primary bond indicator. that are on a PnF buy signal. Middle of the Weekly Distribution Trading band.PnF University Bullish Percent Is the percentage of stocks. Is given when a column of X's exceeds a previous column of Buy signal X's. http://208.

Shown on trend charts.PnF University Shakeout A stock in an uptrend forms two tops and breaks a double bottom. based on the strength of the original breakout. Triple Bottom Occurs when a stock exceeds two previous columns of O's. Support Line Bullish Support Line TOP Trend Chart Top of the Weekly Distribution Trading Band. Point and Figure Glossary: Based on 10 weeks of data. Vertical Price Objective Weekly Distribution Trading Bands Use to determine the upside potential of a stock.108.html (3 of 3) [4/19/2001 8:40:08 PM] . it provides a picture of the overbought/oversold nature of a stock.exe/D:\foxap.67/cgi-bin/foxweb.com&doc=glossary. Triple Top Occurs when a stock exceeds two previous columns of X's. ABCDEFGHIJKLMNOPQRSTUVWXYZ http://208. The daily point and figure chart depicting price action of the stock or index..univ?email=neowaver@hotmail.. The action point here is a three box reversal to the upside.149.

PnF University http://208..niv?email=neowaver@hotmail.108..67/cgi-bin/foxweb.149.exe/D:\foxap.com&doc=anecdotes.html (1 of 2) [4/19/2001 8:40:51 PM] .

67/cgi-bin/foxweb..108.149.niv?email=neowaver@hotmail.com&doc=anecdotes.PnF University ÿ http://208.exe/D:\foxap..html (2 of 2) [4/19/2001 8:40:51 PM] .

com&doc=faq.108.149.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.69/cgi-bin/foxweb.PnF University http://208.html [4/19/2001 8:41:14 PM] .

html [4/19/2001 8:41:34 PM] .exe/D:\foxapps\fwuniv?email=neowaver@hotmail.PnF University http://208.149.108.67/cgi-bin/foxweb.com&doc=faq.

108.149.67/cgi-bin/foxweb.PnF University http://208.com&doc=help.html [4/19/2001 8:41:52 PM] .exe/D:\foxapps\fwuniv?email=neowaver@hotmail.

PnF University Welcome: Lesson 2: Introduction This chapter concentrates on the basic buy and sell signals In this section we will list any for all PnF charts and pattern development. Next http://208. If it has not. It is through the understanding of Message Board these patterns that we can analyze a chart. It will be answered shortly (within two business days).149. First we will show upcoming live online classes how supply and demand control the movement of the chart specifically covering this and how these signals are created. Then we will describe the chapter. Examples Test yourself at the end of the chapter to sharpen your skills. please check the "Questions" section to see if it has already been answered. If you have any questions. Lesson 2 Contents: Part 1: Chart Patterns Battle between supply and demand Double Top/Double Bottom Triple Top/Triple Bottom Catapult formations Triangle formations Spread Triple Tops Shakeout formations Signal Reversed Patterns Long Tail Down High Pole Part 2: Price Objectives Vertical Price Objective Bullish Vertical Count Bearish Vertical Count Horizontal Price Objective Bullish Horizontal Count Bearish Horizontal Count Price Objectives with different box sizes. different patterns and how they develop.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.com&lesson=2&page=1 [4/19/2001 8:42:41 PM] . Every chart develops a pattern which tells a story.67/cgi-bin/foxweb. then click on the question mark icon below to email us your question. Calculations through changing box sizes.108. Here are the basics.

in X's. Double Top A sell signal shows supply is in control. They are the Double Top Buy signal and the Double Bottom Sell signal. Here the double bottom is http://208. There are two basic signals that develop.108. Here the double top is formed.com&lesson=2&page=2 (1 of 5) [4/19/2001 8:43:41 PM] .69/cgi-bin/foxweb. in O's. It occurs when a column of X's exceeds the previous colomn of X's. The Double Top Break A buy signal shows demand is in control of the stock. Demand gains control and the chart reverses into X's.. These are the two most basic patterns and it is imparative that you understand them. In this case the stock exceeded the previous column of O's. Double Top Break A double top break occurs when a chart. Supply then regains control of the chart and it reverses back into O's where it falls to the previous support.. runs into resistance. Chart Patterns Battle Between Supply and Demand.PnF University Welcome: Lesson 2: Part 1. When the chart is able exceed the this resistance level and rise another box it gives the double top break. The Double Bottom Break A double bottom break occurs when a chart. falls to support. Demand then regains control of the chart and it reverses back into X's where it rallies to the previous resistance.149.wuniv?email=neowaver@hotmail. Supply gains control and the chart reverses into O's. The PnF Chart depicts the battle between Supply and Demand.exe/D:\foxa.

By exceeding this level of resistance the Point and Figure chart gives its most basic buy signal. 2) Over the next few weeks demand once again creeps back into the stock and causes the price to rise to $60 per share.com&lesson=2&page=2 (2 of 5) [4/19/2001 8:43:41 PM] . This selling pressure exceeds the demand at that price and the stock retreats.exe/D:\foxa. then the sellers are still there. and IBM now sits at the same level that previously caused supply to enter the market. Double Bottom: http://208. This is causes a three-box reversal back up into a column of X's. The only way to find out if the sellers are still operating at that price is to see how IBM negotiates that level. In this example. 3) The question now is whether the sellers that forced the stock back before are still there..108.69/cgi-bin/foxweb..149. the Double Top Break. the chart reverses to O's from X's. it requires a three-box reversal to change columns.PnF University formed. then we can say that demand has prevailed at this price by exceeding the level where supply had previously gained control. Double Top: 1) For example.wuniv?email=neowaver@hotmail. the selling pressure was enough to force IBM back to $57. Double Bottom Double Bottom Break The Supply and Demand Scenario. When the chart is able exceed the this support level and fall another box it gives the double bottom break. IBM rises to $60 and meets selling pressure. Demand is now in control of this stock. Remember. If it instead is able to move to $61. If it is again repelled.

it instead reversed and exceeded the previous level of support. Supply again takes over and the chart reverses back down to 53 exceeding the support at 54 and creating a double bottom sell signal at 53. the buyers are not there as before and the selling pressure persists until the stock exceeds that level of support. What is important is knowing that supply is in control.PnF University 1) In this 2) Demand comes into the stock with the price rising to 57 and reverses the chart into a column of X's.108. Here the stock first reverses down into O's to the 54 level. However this time.. Instead of IBM exceeding the previous point of resistance. 3) Summary: Supply wins and the probability of lower prices come into play. supply and demand cause stocks to move up and down and nothing else.com&lesson=2&page=2 (3 of 5) [4/19/2001 8:43:41 PM] .wuniv?email=neowaver@hotmail.exe/D:\foxa. http://208. pattern. for in the end.69/cgi-bin/foxweb. The reason supply overtook demand is not important.. The stock encounters selling pressure which drives IBM back down the chart to the 54 level where demand previously took control providing support.149. supply wins the match.

the last column of O's does not extend down as low as the previous column of O's. The column of O's exceeding the previous column of O's gives the double botom sell signal. We call that a rising bottom. The Bullish Signal We add one more dimension.. This is one of the great advantages of Point and Figure charts.149. This is clearly shown on the chart as the price where columns of O's stopped.108. There is no mistaking whether a stock gave a buy or sell signal. This stock found good support at 54.. demand is getting stronger as the last column of X's exceeds the previous column of X's giving a double top buy signal.com&lesson=2&page=2 (4 of 5) [4/19/2001 8:43:41 PM] . The rising bottom shows us that supply is getting weaker providing added guidance when evaluating the supply-demand relationship of the underlying stock. after holding the support.PnF University More Examples: Here the stock rises to $60 a second time where it is repelled. This shows there is resistance at that level. one of the most basic patterns. In this example.wuniv?email=neowaver@hotmail. to the pattern this time. They are as clear as it gets. On the other side of the coin. an added clue.exe/D:\foxa. The Bearish Signal http://208.69/cgi-bin/foxweb. At this point we do not have enough pieces of the puzzle to say whether to sell the stock. In this next pattern. demand regains control and exceeds the previous top at $57 giving the double top buy signal. It signifies that supply is becoming less a factor in driving the stock. As we conintue through the university all the different pieces will start to come together.

108.. Selling pressure however is increasing as evidenced by the lower column of O's.PnF University Demand in this case is becoming weaker as the last column of X's fails to reach the previous level.149. So far we have discussed the Double Bottom and Double Top. All other other patterns we will cover are expansions of this basic form. The Bullish and Bearish Signals here are part of Double Top/Double Bottom patterns but when analyzing charts with all patterns types recognizing a series of higher bottoms and tops or lower tops and bottoms is crucial in making the right trade or investment decision. By now.wuniv?email=neowaver@hotmail. Next http://208.exe/D:\foxa.com&lesson=2&page=2 (5 of 5) [4/19/2001 8:43:41 PM] .69/cgi-bin/foxweb. These clues simply suggest demand is losing strength and supply is gaining strength.. you can see how simple this method is to grasp.

the wider the base from which a stock breaks out the higher the stock will rise. The thought that probably crossed your mind as you saw the stock lose value was that if the stock got back to even you were out! This is a perfectly normal human reaction. you are in essence creating supply at that level.. It was said years ago that the degree to which a stock will rise is in exact proportion to the time the stock took in preparation for that move. This is why we consider the triple top break a stronger pattern than the double top. it is repelled by sellers. The only way we know whether the selling pressure has been exhausted at a particular level is if the stock is able to exceed that price. The more times a stock pulls back from a resistance level. The third time the stock rises to that level.108.wuniv?email=neowaver@hotmail. price level three times. the stronger the breakout will be when it comes.com&lesson=2&page=3 (1 of 3) [4/19/2001 8:45:01 PM] . In other words. has a high degree of reliability. The first two times the stock holds and reverses up. it forms the Triple Top.PnF University Triple Top Buy Signal The Triple Top is exactly what The buy signal is given when the stock the name suggests . If more sellers are willing to sell their stock at that level than buyers are willing to buy. It is characterized by a stock falling to an area of support three times.. the stock will decline. the stock immediately declined. the sellers are still there. The third time there is not enough demand to cause the chart to reverse and instead it exceeds the two previous bottoms giving the triple bottom sell signal. The Triple Bottom sell signal.a chart exceeds the level that previously caused pattern that rises to a certain the stock to reverse down. The first two times the stock visits that level. We have all had experiences like that. Triple Bottom Sell Signal. Think back to a time when you bought stock thinking it was at a bottom or at least an opportune price level to buy. Instead of rising.149. If the stock is repelled again. http://208.69/cgi-bin/foxweb. There are many reasons why a stock will encounter supply at certain levels. When you place that order to get out at your break-even point. like the Triple Top.exe/D:\foxa.

moment an investor who buys a stock at $31 per share and then leaves on vacation for one month.. He checks the price frequently and notices that his stock is still around the price he paid for it. The Bullish and Bearish Catapult Formation The Bullish Catapult is a combination of the Triple Top buy signal and the Double Top buy signal.149.69/cgi-bin/foxweb.exe/D:\foxa. demand regains control and the stock reverses back up and gives a Double Top buy signal.PnF University Consider for a What is he missing in this puzzle? What he is missing is that a battle between supply and demand has been completed with supply winning the match. The charts below depict a Bullish Catapult formation. he should at least be aware of it.wuniv?email=neowaver@hotmail. only down a point. it suggests that the risk in that position has increased tremendously. He feels comfortable with the stock as the fundamentals remain in place.com&lesson=2&page=3 (2 of 3) [4/19/2001 8:45:01 PM] . The probability of lower prices is very high. Whether this investor chooses to do anything about the signal or not.. This pattern is a confidence builder. The Triple Bottom sell signal does not mean that the stock will cave in immediately. Following the pullback. http://208. It is imparative to update the charts. The Catapult is created when a stock gives a Triple Top buy signal whic is followed by a pullback producing a higher bottom. he is far ahead of the investor who holds the same position without any warning. By doing so patterns such as this one will not sneak up on you.108. If the investor does nothing other than increase his awareness of a potential decline. Not bad for a market that had been volatile for the past month.

exe/D:\foxa. The resumption of trend completes the Catapult by giving a Double Top buy signal. 2. Next http://208..)The subsequent reversal producing a higher bottom suggests that supply is beginning to dry up or become a less significant factor. Notice how the column produces a higher bottom. To better understand what the Catapult is saying.com&lesson=2&page=3 (3 of 3) [4/19/2001 8:45:01 PM] ..69/cgi-bin/foxweb.)..108.149. This is a pattern that you can be aggressive with especially when the overall markets are in a bullish mode. this type of pattern has a success probability of 87. 1.wuniv?email=neowaver@hotmail. 3. and the fundamentals are superior in the stock (we will cover all of these other aspects in later lessons. assuming the market is in a bullish mode. Notice the Triple Top buy signal followed by the pullback into a column of O's. Then the Double Top Break Completed: A triple top followed by a double top break..)The resumption of trend and subsequent Double Top buy signal simply confirms the Triple Top. let's look at each piece of the pattern as illustrated above. This is why it is called a confidence builder.. the underlying sector is in a bullish mode.5% in bull markets.PnF University Bullish Catapult First the Triple Then the Double Top.)The Triple Top is saying that the stock has a very high probability of rising in price. Top.. In fact.

Interpreting what this formation is telling us we first see the Triple Bottom break.. Below is an example of how it is formed.108.. In the same respects of a Bullish Catapult being a confidence builder the Bearish Catapult is a confirmation of a stock breaking down.. The Triple Bottom sell signal is then followed by a lower top and a Double Bottom sell signal.PnF University Welcome: Lesson 2: Part 1 continued.. Watch carefully for this pattern because it suggests lower prices from the underlying stock. Then the Then the Double Double Bottom.wuniv?email=neowaver@hotmail. Chart Patterns Bearish Catapult This can be interpreted exactly opposite the Bullish Catapult formation and is particularly useful in timing short sales as it clearly shows supply in control... which you have already learned is very negative for the stock.exe/D:\foxa.62/cgi-bin/foxweb.. First the Triple Bottom . These two signals together clearly show supply coming into control of the stock and demand drying up.. Bottom Break.149. http://208. Completed: A triple bottom followed by a double bottom break Let's break this down some more... two sell signals in a row along with a lower top.com&lesson=2&page=4 (1 of 4) [4/19/2001 8:45:46 PM] .

you would pick the one on the left.PnF University Looking at the two stocks to the right. in the in the same sector and at the same price. very easy to see which stocks are rising and which are breaking down.com&lesson=2&page=4 (2 of 4) [4/19/2001 8:45:46 PM] . the pattern must have at least five vertical columns. http://208..62/cgi-bin/foxweb.149.. it will give a double top buy signal.exe/D:\foxa. The Double Bottom sell signal suggests that the probability is lower prices in the stock. A break to the upside designates a Bullish Triangle and a break to the downside designates a Bearish Triangle. As the lower tops and higher bottoms develop the chart comes to a point creating the triangle look of the pattern. Bearish Triangle If the pattern breaks down the match is won by supply. To qualify as a Triangle. 5 columns needed to complete a triangle. When the chart comes to a point either supply or demand will have to gain control and either a double top break or a double bottom break will be given. Examples of the Bullish and Bearish Triangle are below. Spread Triple Top Pattern and Spread Triple Bottom Pattern.108. This sounds a little backwards but what is happening is that the chart is a bit confused. The beauty of Point and Figure is that it is very visual. There is no clear winner in the battle between Supply and Demand.wuniv?email=neowaver@hotmail. The Double Top buy signal simply suggests that demand has won the match and the probability is higher prices in the stock. Bullish Catapult Bearish Catapult The Triangle Formation The Triangle formation is easily identified by the higher bottoms and lower tops. If they are both recommended on a fundamental basis. Bullish Triangle If the pattern resolves itself up. Which one would you buy? Clearly.

there are apparently sell orders there. The only way to know if demand can overtake the selling pressure is to see how the stock negotiates the level again. if the stock is repelled again at this level of resistance. Consider that both stocks are fundamentally sound and each is being recommended by a major firm on Wall Street. exceeds the spread triple bottom. then on the third trip back up it only reaches 53 before it pulls back again.62/cgi-bin/foxweb.108. both stocks are equal.149. In each case.. Notice that in the following two patterns. For example. You need not know any more. then demand has overcome the supply that previously caused it to reverse.PnF University This pattern is basically the same as the triple top and triple bottom with one exception. This is one that is best understood by looking at an example. Spread Triple Top A gap in between three columns of X's at the same level. What is important is that you know there are sellers at that particular level. Simply stated. Which stock do you select? Stock A: Spread Triple Top Stock B: Spread Triple Bottom Without the chart patterns shown here..exe/D:\foxa. Spread Triple Bottom. You have studied the fundamentals of the two stocks and are now trying to determine which stock to buy. If the stocks exceeds that level. the stocks are trading at the same price.com&lesson=2&page=4 (3 of 4) [4/19/2001 8:45:46 PM] . The testing of the support or resistance level is not completed in three consecutive columns. The same philosophy applies with these patterns as the Triple Top and Bottom. Then on the fourth atempt it is able to break the 55 level. a stock may rally and test 55 twice. We will take a look from the Triple Top perspective. The reason is not important. A column of X's exceeds the spread triple top. the stock rises to a certain price level and is repelled two times. The stock still exceeds the 55 level it tested three times but there was a "spread" between the second and third atempt. therefore both stocks should do about as well http://208. Since the stock was repelled twice at that same level. Spread Triple Bottom A gap in between three break column of O's at the A column of O's same level. It's the moment of truth.wuniv?email=neowaver@hotmail. you would be in a quandary. the sellers are still there. Both stocks are in the same industry group and pay about the same dividend. Looking at the fundamental data alone. The third attempt at that price is successful by the stock moving through the level shown by a column of X's exceeding the point of resistance. Spread Triple Top break.

. Not so.62/cgi-bin/foxweb.com&lesson=2&page=4 (4 of 4) [4/19/2001 8:45:46 PM] .108.149. If you had the benefit of evaluating the Point and Figure charts the selection process would become much easier.exe/D:\foxa. This simple exercise shows why charts are so important and why you can achieve the best results in the market when you use both fundamental and technical analysis. Next http://208..wuniv?email=neowaver@hotmail.PnF University in the future. With the information and charts above which stock do you select? It doesn't take an in-depth understanding of this method to determine Stock A is on a buy signal with the probability of higher prices and Stock B is on a sell signal with lower prices likely.

108. this pattern is in a strong up trend.149. 3.exe/D:\foxa.64/cgi-bin/foxweb.. in effect "shaking out" these weak holders. The Shakeout is relatively new and we have found it very useful in real-life application. The stock must rise to a level where it forms two tops at the same price forming a Double Top.PnF University Welcome: Lesson 2: Part 1 continued. It is called the Shakeout because the pattern is deceiving causing some holder of the stock to sell. For the pattern to be a true Shakeout formation.. This pattern has a high degree of reliability. Shakeout Pattern First.wuniv?email=neowaver@hotmail. Chart Patterns The Shakeout Formation. The stock must be in a strong up trend and trading above the Bullish Support Line. Then the chart gives a Double Bottom sell signal.. 1. 2..com&lesson=2&page=5 (1 of 4) [4/19/2001 8:46:28 PM] . http://208. it must have the following attributes. The subsequent reversal of the stock from these two tops must give a Double Bottom sell signal.

Each column of X's must be lower than the one before and each column of O's must carry lower than the one prior to it. What we are looking for here is a trade. We wait for the breakout because until it is given supply is in control. The action point with this chart is the breakout.PnF University Bearish Signal Reversed. To qualify for a Long Tail Down.exe/D:\foxa. we like to see a stock that has declined 20 boxes or more with a reversal up. When the last top is made in the seventh column. without a period of accumulation. In this pattern we will see the stock reverse up and quickly. When evaluating these plays we want to find stocks that have pulled back to http://208. Bullish Signal Reversed. We do not see this pattern very often but when we do its one of the best.. we start looking when a stock falls 18 O's down..149. In fact. This pattern is the reverse of the Bearish Signal Reversed. Action of this type indicates supply is in control and getting stronger.wuniv?email=neowaver@hotmail. Long Tail Down. break a double top. We are not going to split hairs over 20 boxes down. This pattern shows seven columns of rising bottoms and rising tops.64/cgi-bin/foxweb.com&lesson=2&page=5 (2 of 4) [4/19/2001 8:46:28 PM] . the stock reverses and without a period of distribution declines to give the Double Bottom sell signal reversing a series of rising bottoms. This pattern must have seven columns to qualify. The next three box reversal to the upside often leads to a decent bounce. This reverses the series of lower tops and often leads to a strong move to the upside.108.

com&lesson=2&page=5 (3 of 4) [4/19/2001 8:46:28 PM] . It's a warning that supply might be taking control of the stock.wuniv?email=neowaver@hotmail.149. Following the rise in X's.64/cgi-bin/foxweb. If the stock falls 20 boxes and sits there for 3 months then we wouldn't look for much of a "Dead Cat Bounce". It occurs when a chart exceeds a previous column of X's by at least 3 boxes. the stock must pull back at least 50 percent of that last up-thrust on the chart.exe/D:\foxa. In the example to the right the stock rises above the previous column of X's by four boxes making the move 7 boxes in total. A greater than 50% retracement would be a pullback of 4 boxes or a move http://208.PnF University an area of support and we want the reversal to occur fairly quickly. The thought behind the formation is that there must be something wrong with the supply-demand relationship if the stock subsequently gave up 50 percent of the last move up.. High Pole Warning Formation.108.. This pattern is not actually a sell signal.

exe/D:\foxa.64/cgi-bin/foxweb.com&lesson=2&page=5 (4 of 4) [4/19/2001 8:46:28 PM] .108.wuniv?email=neowaver@hotmail...149.PnF University to 19. Next http://208.

This technique is used when evaluating the risk/reward ratio of a stock.108.69/cgi-bin/foxweb. Vertical Price Objective and Horizontal Price Objective. You wait for the reversal down into a column of O's before counting the number of X's up to ensure there will be no more X's added to the column. Once you have counted the X's. The Vertical Price Objective. Each are described below. It is imperative that you evaluate the risk/reward ratio when investing. Typically we use the Vertical count when evaluating price objectives. For the Bullish Vertical Count: Look to the column that has the first buy signal off the bottom and count the number of X's in it. This will be covered in detail in later lessons.149.. Let's break it down piece by piece.PnF University Welcome: Lesson 2: Part 2 . We prefer to use the Horizontal count when a stock has built a large base. the Vertical Price Objective and Horizontal Price Objective.com&lesson=2&page=6 (1 of 3) [4/19/2001 8:47:19 PM] .exe/D:\foxa. Multiply 10 times the three box reversal method (3) 10 x 3 = 30 The box size is 1 (we will cover box sizes in a minute) so the calculation now is 30 x 1 which equals 30.wuniv?email=neowaver@hotmail. but are a good guideline in determining how far a signal can carry a stock. "What is the Price Objective?". With each type you can determine a bullish and bearish price objective..Price Objectives. multiply by 3 (for the three box reversal method) and then multiply that product by the value per box. 51 is your price objective. Add 30 to the bottom X of the column you counted 30 + 21 = 51.meaning. Add this result to the bottom X There are 10 X's in the first column of X's from the LAST sell signal. Price objectives are NOT set in stone. Here are how they are calculated. There are two types of counts. You will hear people ask "What is the PO?" . http://208.

5: Determine the price level at the bottom of the column of X's.wuniv?email=neowaver@hotmail. 3: 4: Determine if the run in the column of X's Count the column of X's with the buy has been terminated by a reversal.149. signal.69/cgi-bin/foxweb..exe/D:\foxa.PnF University 1: Find the last sell signal on the chart 2: Find the column of X's that create the buy signal after the last sell signal.com&lesson=2&page=6 (2 of 3) [4/19/2001 8:47:19 PM] .. 6: Start your calculation.108. http://208.

= 51 51 is the Vertical Price objective.wuniv?email=neowaver@hotmail. 30 x 1 (box size) = 30.108. 10 x 3 (for the three box reversal)..exe/D:\foxa.PnF University Formula: (# X's)(3)(box size) + bottom X = PO There were 10 X's in the column. Next http://208.149.69/cgi-bin/foxweb. = 30..com&lesson=2&page=6 (3 of 3) [4/19/2001 8:47:19 PM] . 30 + 21 (bottom X at the $21 level).

Once you have counted the O's. 1: Find the last buy signal on the chart 2: Find the column of O's that create the sell signal after the last buy signal.149. multiply by 2 (this is where the bearish count is different from the bullish count) and then multiply that product by the value per box.com&lesson=2&page=7 (1 of 2) [4/19/2001 8:47:53 PM] .PnF University Welcome: Lesson 2: Part 2 ..108. This is because the market generally has a bias towards the upside so we multiply by a smaller number.exe/D:\foxa. The Bearish Vertical count.63/cgi-bin/foxweb. You wait for the reversal up into a column of X's before counting the number of O's down to ensure there will be no more O's added to the column.Price Objectives.wuniv?email=neowaver@hotmail. Subtract this result to the top O Let's break it down. Look to the first sell signal off the top and count the number of O's it moves down before reversing back up.. http://208.

wuniv?email=neowaver@hotmail.exe/D:\foxa.149.. 20 x 1 (box size) = 20. 5: Determine the price level at the top of the column of O's.com&lesson=2&page=7 (2 of 2) [4/19/2001 8:47:53 PM] . = 11 11 is the Vertical Price objective.. 4: Count the column of O's with the sell signal.108. 31 .PnF University 3: Determine if the run in the column of O's has been terminated by a reversal. 6: Start your calculation. 10 x 2 = 20. Next http://208. Formula: (# O's)(2)(box size)-Top O = PO There were 10 O's in the column.63/cgi-bin/foxweb.20 (top O at the $31 level).

108.Horizontal Count.Price Objectives.. The more it builds up the more explosive the breakout can be. Once a buy signal is given.64/cgi-bin/foxweb.we think of them as powder kegs. http://208. you must be able to count horizontally the columns filled with X's and O's without any spaces in between.. When a stock creates a large base. Multiply the number of columns across the formation by 3 and then multiply that product by the value per box. The base of the formation must be unbroken. In general. Horizontal Price Objective.com&lesson=2&page=8 (1 of 3) [4/19/2001 8:48:20 PM] . Bullish horizontal count.exe/D:\foxa.149.wuniv?email=neowaver@hotmail.PnF University Welcome: Lesson 2: Part 2 . There are no minimum columns required but you will see many charts where a large area of accumulation was created and then the chart broke out. In other words. a horizontal count is a judgment call. The Horizontal Price Objective is determined by measuring the base that a stock has created and broken. Add this number to the bottom of the formation. Otherwise we would use a vertical count. Find the widest part of the base that is unbroken to count. we measure its width. These are the charts where a horizontal count is most effective . count across the base the stock has built. Stocks that have formed a large base lend themselves to the horizontal count.

Horizontal Price objective is 41. 2: Find the widest part of the base unbroken.PnF University Let's break it down. Formula: (# Col. Add 21 to the bottom of the base which is 20 21+ 20 = 41.. Next http://208. across the base)(3)(box size ) + bottom of base = PO Widest part of formation is 7 boxes. 1: Make sure there is a buy signal off an accumulated base.exe/D:\foxa. that can be counted. 5: Calculate the PO.149.com&lesson=2&page=8 (2 of 3) [4/19/2001 8:48:20 PM] . 3: Count the columns.. 7 x 3 (three box reversal) = 21 21 x 1 (box size) = 21. 4: Find the bottom of the base.wuniv?email=neowaver@hotmail. Sometimes this is a judgment call too.108.64/cgi-bin/foxweb.

.64/cgi-bin/foxweb..com&lesson=2&page=8 (3 of 3) [4/19/2001 8:48:20 PM] .wuniv?email=neowaver@hotmail.PnF University http://208.exe/D:\foxa.108.149.

. Find the widest part of the base unbroken. http://208. Once a sell signal is given.. 1: Make sure there is a sell signal off an accumulated base.6/cgi-bin/foxweb. As with the bearish vertical count we multiply the bearish objective by 2. Sometimes this is a judgment call .exe/D:\foxap.149. Bearish horizontal count. 3: Count the columns.Horizontal Count.wuniv?email=neowaver@hotmail.Price Objectives . Let's break it down.PnF University Welcome: Lesson 2: Part 2 .108. 2. Multiply the number of columns across the formation by 2 and then multiply that product by the value per box. Add this number to the bottom of the formation. count across the base the stock has built. that can be counted. 4: Find the top of the base.com&lesson=2&page=9 (1 of 2) [4/19/2001 8:49:00 PM] .

Top of base = PO Widest part of formation is 8 boxes.exe/D:\foxap.PnF University 5: Calculate the PO.. 8 x 2 (bearish is 2) = 16 16 x 1 (box size) = 16 Subtract 16 from the top of the base which is 34 34 -16 = 18 Horizontal Price objective is 18.149.6/cgi-bin/foxweb. Next http://208.wuniv?email=neowaver@hotmail.108..com&lesson=2&page=9 (2 of 2) [4/19/2001 8:49:00 PM] . Formula: (# boxes across)(2)(box size).

50 O X<-Bottom X. Formula Examples: 0.25 O X<-Bottom X. Now that you have the basics down for doing the vertical and horizontal counts adding the different box size calculations will be easier.25 X O 3. Bullish Vertical Counts: Box Size 0.50) = 15 + 12.00 Example: We have 10 X's in a Price column to count..61/cgi-bin/foxweb.149. 12.50 Box Size 3.25 0.25 = 8.00 X O X O X 1..exe/D:\foxa.50.108. 1.50 PO = 27. when a chart crosses over two different box sizes you have to do the calculation twice and add together.00 X <--10 X's.50 X X X 14.50 1.50 X O 16. So. when the scale changes we must adjust.5 + 1. Let's start with a table of the calculations. This is because we are measuring the strength of the move off the bottom and that is measured by the movement in price.50 O O X 1. 17.75.25) = 7. http://208.75.00 X X 14.00 O (10)(3) = (30)(.50 X <--10 X's.00 O (10)(3) = (30)(.00 2.75 X O 2.PnF University Welcome: Lesson 2: Part 2: Price Objectives Price Objectives with different box sizes. (X)(3) = (?)(.50.50 = 27.50) = 15 + 12. 3.00 O O X 12.75 X O X O X 1.25 Box Size.50 X O 15.com&lesson=2&page=10 (1 of 3) [4/19/2001 8:49:21 PM] .25) + bottom X = (10)(3) = (30)(. 16.25 X X X 2.00 X O 2. (X)(3) = (?)(1) + bottom X = (10)(3) = (30)(1) = 30 + 21 = 51 PO 51.5 + 1. Bottom X is a Objective variable.00 X O X O X 13. Sometimes. The box size changes do effect the price objectives of the chart.50 X O X O X 13.25 8.50) + bottom X = (10)(3) = (30)(. . (X)(3) = (?)(2) + bottom X = (10)(3) = (30)(2) = 60 + 102 = 162 PO 162.univ?email=neowaver@hotmail.50 27.25) = 7. (X)(3) = (?)(.75 PO = 8.50 X X 2.00 X O 15.

Formula Examples: 0.00 X O X O X 13.50 X 5. 15.5 = 10.5 PO 2.50 12.exe/D:\foxa.25 Box Size.50 X O O 13.5. (O)(2)=(?)(.50 (5)(2) = (10)(.PnF University 1.25) = 2.00 2.00 Box Size 51 50 49 48 47 46 45 44 X X X X X O X X O X O X X O O O O O O O <-Top O X X X <--5 O's 15 .50 X O X O X O 4.5 = 2.00 5 -2. .00 X X 14.00 O 3.00 Example: We have 5 O's in Price a column to count. 118 X O 116 X O 114 X O 112 X X 110 X X X 108 X O X O X 106 X O X O X 104 O O X 102 O X<-Bottom X.5.0 Box Size 30 X <--10 X's..50) = 5. 150 130.00 12. (O)(2)=(?)(2) = ? Top O -? = PO (5)(2) = (10)(2) = 20.55 X X O X 14.50) = 5 <-Top O X X X <--5 O's 1.149.5 = 2. 5 2.108.25 X O O O 4.00 Box Size 2.50 X 15.55. 29 X O 28 X O 27 X O 26 X X 25 X X X 24 X O X O X 23 X O X O X 22 O O X 21 O X<-Bottom X.univ?email=neowaver@hotmail.61/cgi-bin/foxweb.75 3.00 Box Size O O O O O <-Top O X X X <--5 O's 152 150 148 146 144 142 140 138 X X X X X O X X O X O X X O O O O O O O <-Top O X X X <--5 O's http://208.00 X X O 4.75 X X O X O 4. (O)(2)=(?)(. 15 -5 10.50) = ? Top O -? = (5)(2) = (10)(. Bearish Vertical Counts: Box Size 0. 120 X <--10 X's.25) = ? Top O -? = (5)(2) = (10)(.50 1. 20 O (10)(3) = (30)(1) = 30 + 21 = 51. PO = 10..25 0. You can see here how the momentum changes as the box sizes become higher. 20 = 130. 100 O (10)(3) = (30)(2) = 60 + 102 = 162. (O)(2)=(?)(1) = ? Top O -? = PO (5)(2) = (10)(1) = 10. = 40.5.com&lesson=2&page=10 (2 of 3) [4/19/2001 8:49:21 PM] .25) = 2.50 Box Size 5. 50 -10 40. 2. (5)(2) = (10)(. Top O is Objective variable.

We have 10 boxes Price and the bottom of the base is Objective a variable.61/cgi-bin/foxweb.50 1.50 1.. (5)(2) = (10)(2) = 20 150 .univ?email=neowaver@hotmail.108.25) = 7.25) + bottom of (10)(3) = (30)(. Formula Bearish Horizontal Count. Box Size 0. 5 1.5 (10)(2) = (20)(.25 0. For Horizontal Counts it is the same thing.5 = .PnF University (5)(2) = (10)(1) = 10 50 -10 = 40.com&lesson=2&page=10 (3 of 3) [4/19/2001 8:49:21 PM] .25) = ? Top of base -? = PO (boxes)(2) = (?)(.5 (10)(2) = (20)(1) = 20.00 Formula (boxes)(2) = (?)(.10 (10)(2) = (20)(2) = 40. Box Size 0. 15 5 -10 = .50) = ? Top of base -? = PO (boxes)(2) = (?)(1) = ? Top of base -? = PO (boxes)(2) = (?)(2) = ? Top of base -? = PO Example.25) = 5. 150 110 40 = .. (10)(3) = (30)(2) = 60 + 102 = (boxes)(3) = (?)(2) + bottom of 162 base = PO 162.50) = 15 + 15 = 30 base = PO 30. You take the box size and put it into the appropriate slot for calculation. 30 10 20 = . (boxes)(3) = (?)(.50) = 10.110 Next http://208.25 0. (10)(3) = (30)(1) = 30 + 35 = (boxes)(3) = (?)(1) + bottom of 65 base = PO 65.5 3.50) + bottom of (10)(3) = (30)(. (10)(2) = (20)(.149. (boxes)(3) = (?)(. We have 10 boxes Price and the bottom of the base is Objective a variable.5 + 3.00 Example.1. Bullish Horizontal Count.exe/D:\foxa.00 2.20 = 130.00 2.5 11 base = PO = 11.

7 x 3 = 21 x .25 to the . 6 x 3 = 18 x 1 = 18. and do the calculation for the . Count the X's from the bottom X to the change of count.25 to the .00 to 2.50 box scale.. which is 6.50 Box Size . which is 7.50 = 6 Now count the remaining X's.. Do the calculation for the .50 box scale. 6 + 18 = 24 + 18.00 Box Size Count the X's from the bottom X to the change of count. only the vertical count. Everything is in reverse so be aware of which box sizes you are multiplying. 4 x 3 = 12 x .25 Now count the remaining X's. 7 x 3 = 21 x 2 = 42. 3 x 3 = 9 x .00 Box Size 1. and do the calculation for the 2 box scale. We round up since it falls into the 1 box scale. 9 + 42 = 51 + 98 = 149 Price objective is 149 Calculation for O's Remember that you multiply by 2 not 3 for the three box reversal. This is where the vertical counts becomes confusing but as long as you understand the different calculations for the box sizes. you will be able to do this easily. and do the calculation for the .50 to 1.50 = 10. Add the two totals together.50 Price objective is 43.25 = 2. .50 box scale.exe/D:\foxap.108. Add the two totals together.PnF University Welcome: Lesson 2: Part 2: Price Objectives Calculations through changing box sizes. Just add the two calculations together.50 box scale. 3 x 3 = 9 x .univ?email=neowaver@hotmail.50 to 1.50 We round up since it falls into the . You will not have this type of calculation with the Horizontal count because it inherently does not cross different box sizes. which is 7.5. Add the two totals together.5 = 12.149.00 Box Size http://208.25 Price objective is 17.50 = 17.50 Box Size .00 to 2. Here it is three boxes.00 Box Size 1. .6/cgi-bin/foxweb.1 = 9 Now count the remaining X's. Do the calculation for the .50 = 42. Here it is four boxes. 2. Count the X's from the bottom X to the change of count.com&lesson=2&page=11 (1 of 2) [4/19/2001 8:49:58 PM] .25 box scale.25 + 10.75 + 4. Here it is three boxes. Do the calculation for the 1 box scale.

and do the calculation for the . Do the calculation for the . Do the calculation for the 1 box scale.50 box scale.PnF University Count the O's from the top O to the change of count. 3x2=6x1=6 Count the O's from the top O to the change of count. 3 x 2 = 6 x .25 box scale. 4 x 2 = 8 x .50 Price objective is 1. Add the two totals together. and do the calculation for the 1 box scale. 12 + 8 = 20.25 = 2.univ?email=neowaver@hotmail.exe/D:\foxap. 102 .. Here it is three boxes.. 3 x 2 = 6 x 2 = 12 Now count the remaining O's. which is four.50 box scale.9 = 13 Price objective is 13 Add the two totals together. Now count the remaining O's.6/cgi-bin/foxweb. Now count the remaining O's. 22 . Here it is two boxes. 2 x 2 = 4 x . 5. 2 + 2 = 4.149. and do the calculation for the .50 = 2 Count the O's from the top O to the change of count.50 .50 = 3.108. which is four. 4 x 2 = 8 x 1 = 8.com&lesson=2&page=11 (2 of 2) [4/19/2001 8:49:58 PM] .20 = 82 Price objective is 82 Next http://208. 6 + 3 = 9. which is three.4 = 1. Do the calculation for the 2 box scale.50 Add the two totals together. Here it is three boxes.

X O X O X O X O --------------X O X O X ------X O X O X O X O X O X O X O O X O X O X O --------------X ----O --------3 X X X --------------X --------------X X X X X X O X <--Buy Signal.64/cgi-bin/foxweb. X O X O This is why we say it is a guide not an absolute.univ?email=neowaver@hotmail.com&lesson=2&page=12 (1 of 2) [4/19/2001 8:50:12 PM] . We'll use charts as they appear on a database.. Price objective is 88 http://208.exe/D:\foxa. This is the column of X's to count. 84 83 82 81 80 79 78 77 76 75 74 73 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 X X <--Stock almost hit price objective.149.PnF University Welcome: Lesson 2: Part 2: Price Objectives Some Charts to example the Vertical Count. X O X <--Bottom X 1 O * 10 x 3 = 30 x 1 = 30 + 58 = 88. --X O X --X O X ------------X O X O X O <--Reversal to O's terminating the coulumn of X's. X O 2 O X X O X O X X O X O X --X O --O X ------------* X O <--Sell Signal..108.

PnF University

53
52
51
50
49
48
47
45
44
43
42
41
40
39
38
37
36
35
34

A
X
X
O X O X
O X O X
O X 9 X
8
O

<--Buy Signal
X
O
Top
X
O
-------------X
O -------------------X
O
7
O
X
X
O <--Sell Signal. Count this column of O's
---------X O X --------O X <--Reversal into X's terminating column of O's.
X O X
O X O X O X
X O *
X
5 O
O X O X O X O
X O
X O X
O
O X O X O X
X O
X O X
O X O X B X O X O
-----X O ------------------O X O X O X O X
Med
X
4
O
O
O X O X
X O X
O X O
X O X
O X
3
O X
-----------------------------------O -<--Stock came very close
to the bearish vertical count

10 x 2 = 20 x 1 = 20. 52 - 20 = 32. Price objective is 32.
Horizontal Price Objective.

59
|
58
|
X
57
|
X
X O
56
|
X O
X O
55 -----+---X --X O ----------------X O
54 X
|
X O X O
X O
53 X O |
X O X O X
X
X
X O
52 X O |
X O X O X O X O
X O X O
51 X O X
X O X O X O X O X
X O X O
50 -X O X O X O X O X O X O X O X 3 X O
49 X O X O X O X O
O
O X O X O X
48 X O X 1 X O X
O X O X O
47 X O X O X O 2
O X O
46 X O | O X O X
O
45 -X --| O X O X --------------------*
44 X
| O
O <--Base support level.

X <--Breakout of base.
X
X
X
X -----X
X
X
Med
X
<--Widest part
of base unbroken.

*
-------

18 x 3 = 54 x 1 = 54 + 44 = 98. Price objective is 98.
Next

http://208.149.108.64/cgi-bin/foxweb.exe/D:\foxa...univ?email=neowaver@hotmail.com&lesson=2&page=12 (2 of 2) [4/19/2001 8:50:12 PM]

PnF University

Welcome:
Lesson 2:

Wrap Up

The battle between Supply and Demand is at the heart of Point and Figure Charting.
From this chapter you have all the basics needed to understand patterns and price
objectives. You can see how the price movement in a stock creates the patterns. These
patterns tell the story of the battle between supply or demand.
Once you have a good understanding of how charts develop and build your confidence with
practice, you will be able to recognize chart development quickly and accurately. Once you
know the basics you can apply your understanding to any PnF chart.
Price objective is a guide, not an absolute. It is useful in helping to determine the risk reward
parameters of a trade. Always remember that PnF is an art form, not a science.
Lesson 2 Contents:
Part 1: Chart Patterns
Battle between supply and demand
Double Top/Double Bottom
Triple Top/Triple Bottom
Catapult formations
Triangle formations
Spread Triple Tops
Shakeout formations
Signal Reversed Patterns
Long Tail Down
High Pole

Part 2: Price Objectives
Vertical Price Objective
Bullish Vertical Count
Bearish Vertical Count
Horizontal Price Objective
Bullish Horizontal Count
Bearish Horizontal Count
Price Objectives with different box sizes.
Calculations through changing box sizes.
Examples

We will now test you to find your comprehension of the subjects discussed in Lesson 2.
Next

http://208.149.108.63/cgi-bin/foxweb.exe/D:\foxapps\...niv?email=neowaver@hotmail.com&lesson=2&page=13.html [4/19/2001 8:51:03 PM]

PnF University

Welcome:
Lesson 2:

Part 2: Price Objectives

Calculations through changing box sizes.
This is where the vertical counts becomes confusing but as long as you understand the different calculations for the box
sizes, you will be able to do this easily. Just add the two calculations together.
You will not have this type of calculation with the Horizontal count because it inherently does not cross different box
sizes, only the vertical count.
.25 to the .50 Box Size

.50 to 1.00 Box Size

1.00 to 2.00 Box Size

Count the X's from the bottom X to the
change of count. Here it is three
boxes. Do the calculation for the .25
box scale.
3 x 3 = 9 x .25 = 2.25
Now count the remaining X's, which is
7, and do the calculation for the .50
box scale.
7 x 3 = 21 x .50 = 10.5.
Add the two totals together.
2.25 + 10.5 = 12.75 + 4.50 = 17.25
Price objective is 17.50 We round up
since it falls into the .50 box scale.

Count the X's from the bottom X to the
change of count. Here it is four boxes.
Do the calculation for the .50 box
scale.
4 x 3 = 12 x .50 = 6
Now count the remaining X's, which is
6, and do the calculation for the .50
box scale.
6 x 3 = 18 x 1 = 18.
Add the two totals together.
6 + 18 = 24 + 18.50 = 42.50
Price objective is 43. We round up
since it falls into the 1 box scale.

Count the X's from the bottom X to the
change of count. Here it is three
boxes. Do the calculation for the 1 box
scale.
3 x 3 = 9 x .1 = 9
Now count the remaining X's, which is
7, and do the calculation for the 2 box
scale.
7 x 3 = 21 x 2 = 42.
Add the two totals together.
9 + 42 = 51 + 98 = 149
Price objective is 149

Calculation for O's
Remember that you multiply by 2 not 3 for the three box reversal. Everything is in reverse so be aware of which box sizes
you are multiplying.
.25 to the .50 Box Size

.50 to 1.00 Box Size

1.00 to 2.00 Box Size

http://208.149.108.61/cgi-bin/foxweb.exe/D:\foxa...univ?email=neowaver@hotmail.com&lesson=2&page=11 (1 of 2) [4/19/2001 8:51:33 PM]

Add the two totals together. Here it is three boxes. Now count the remaining O's.50 box scale.108. 3x2=6x1=6 Count the O's from the top O to the change of count.50 = 2 Count the O's from the top O to the change of count. Now count the remaining O's. 22 . Do the calculation for the . Here it is two boxes.50 box scale. 102 .9 = 13 Price objective is 13 Add the two totals together. 2 + 2 = 4.50 Price objective is 1. Here it is three boxes.61/cgi-bin/foxweb.com&lesson=2&page=11 (2 of 2) [4/19/2001 8:51:33 PM] .50 Add the two totals together.. and do the calculation for the . and do the calculation for the . which is four. 2 x 2 = 4 x .50 = 3. 4 x 2 = 8 x .exe/D:\foxa. 3 x 2 = 6 x . 12 + 8 = 20. 3 x 2 = 6 x 2 = 12 Now count the remaining O's. 5.149. 6 + 3 = 9. 4 x 2 = 8 x 1 = 8.4 = 1.20 = 82 Price objective is 82 Next http://208.25 box scale.25 = 2..PnF University Count the O's from the top O to the change of count. Do the calculation for the 1 box scale.50 . which is three. which is four.univ?email=neowaver@hotmail. Do the calculation for the 2 box scale. and do the calculation for the 1 box scale.

149.62/cgi-bin/foxweb. X O X <--Bottom X 1 O * 10 x 3 = 30 x 1 = 30 + 58 = 88.com&lesson=2&page=12 (1 of 2) [4/19/2001 8:51:48 PM] .. X O X O X O X O --------------X O X O X ------X O X O X O X O X O X O X O O X O X O X O --------------X ----O --------3 X X X --------------X --------------X X X X X X O X <--Buy Signal. --X O X --X O X ------------X O X O X O <--Reversal to O's terminating the coulumn of X's. 84 83 82 81 80 79 78 77 76 75 74 73 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 X X <--Stock almost hit price objective. This is the column of X's to count.108. Price objective is 88 http://208.exe/D:\foxa. X O X O This is why we say it is a guide not an absolute. We'll use charts as they appear on a database.univ?email=neowaver@hotmail. X O 2 O X X O X O X X O X O X --X O --O X ------------* X O <--Sell Signal.PnF University Welcome: Lesson 2: Part 2: Price Objectives Some Charts to example the Vertical Count..

149.62/cgi-bin/foxweb.com&lesson=2&page=12 (2 of 2) [4/19/2001 8:51:48 PM] .univ?email=neowaver@hotmail. 59 | 58 | X 57 | X X O 56 | X O X O 55 -----+---X --X O ----------------X O 54 X | X O X O X O 53 X O | X O X O X X X X O 52 X O | X O X O X O X O X O X O 51 X O X X O X O X O X O X X O X O 50 -X O X O X O X O X O X O X O X 3 X O 49 X O X O X O X O O O X O X O X 48 X O X 1 X O X O X O X O 47 X O X O X O 2 O X O 46 X O | O X O X O 45 -X --| O X O X --------------------* 44 X | O O <--Base support level.PnF University 53 52 51 50 49 48 47 45 44 43 42 41 40 39 38 37 36 35 34 A X X O X O X O X O X O X 9 X 8 O <--Buy Signal X O Top X O -------------X O -------------------X O 7 O X X O <--Sell Signal. X O X O X O X O X X O * X 5 O O X O X O X O X O X O X O O X O X O X X O X O X O X O X B X O X O -----X O ------------------O X O X O X O X Med X 4 O O O X O X X O X O X O X O X O X 3 O X -----------------------------------O -<--Stock came very close to the bearish vertical count 10 x 2 = 20 x 1 = 20. * ------- 18 x 3 = 54 x 1 = 54 + 44 = 98. X X X X -----X X X Med X <--Widest part of base unbroken. Count this column of O's ---------X O X --------O X <--Reversal into X's terminating column of O's. Price objective is 32.108.20 = 32. X <--Breakout of base.exe/D:\foxa.. 52 . Price objective is 98. Next http://208.. Horizontal Price Objective.

Once you have a good understanding of how charts develop and build your confidence with practice. not a science. You can see how the price movement in a stock creates the patterns.PnF University Welcome: Lesson 2: Wrap Up The battle between Supply and Demand is at the heart of Point and Figure Charting.108. Once you know the basics you can apply your understanding to any PnF chart. Next http://208.. Examples We will now test you to find your comprehension of the subjects discussed in Lesson 2. Lesson 2 Contents: Part 1: Chart Patterns Battle between supply and demand Double Top/Double Bottom Triple Top/Triple Bottom Catapult formations Triangle formations Spread Triple Tops Shakeout formations Signal Reversed Patterns Long Tail Down High Pole Part 2: Price Objectives Vertical Price Objective Bullish Vertical Count Bearish Vertical Count Horizontal Price Objective Bullish Horizontal Count Bearish Horizontal Count Price Objectives with different box sizes. Calculations through changing box sizes. Always remember that PnF is an art form.149.69/cgi-bin/foxweb.com&lesson=2&page=13..niv?email=neowaver@hotmail.exe/D:\foxapps\. These patterns tell the story of the battle between supply or demand. you will be able to recognize chart development quickly and accurately. not an absolute.html [4/19/2001 8:52:10 PM] . Price objective is a guide. It is useful in helping to determine the risk reward parameters of a trade. From this chapter you have all the basics needed to understand patterns and price objectives.

com&lesson=2&page=2 (1 of 5) [4/19/2001 8:53:05 PM] . in X's. The PnF Chart depicts the battle between Supply and Demand. Here the double top is formed.. In this case the stock exceeded the previous column of O's.108.149. in O's. Supply gains control and the chart reverses into O's. Supply then regains control of the chart and it reverses back into O's where it falls to the previous support. Demand then regains control of the chart and it reverses back into X's where it rallies to the previous resistance.exe/D:\foxa. Double Top A sell signal shows supply is in control. Demand gains control and the chart reverses into X's.wuniv?email=neowaver@hotmail. It occurs when a column of X's exceeds the previous colomn of X's. The Double Bottom Break A double bottom break occurs when a chart. There are two basic signals that develop.PnF University Welcome: Lesson 2: Part 1. Chart Patterns Battle Between Supply and Demand.. They are the Double Top Buy signal and the Double Bottom Sell signal. The Double Top Break A buy signal shows demand is in control of the stock. Double Top Break A double top break occurs when a chart.62/cgi-bin/foxweb. runs into resistance. falls to support. When the chart is able exceed the this resistance level and rise another box it gives the double top break. These are the two most basic patterns and it is imparative that you understand them. Here the double bottom is http://208.

2) Over the next few weeks demand once again creeps back into the stock and causes the price to rise to $60 per share.com&lesson=2&page=2 (2 of 5) [4/19/2001 8:53:05 PM] . Double Top: 1) For example. then the sellers are still there. then we can say that demand has prevailed at this price by exceeding the level where supply had previously gained control. it requires a three-box reversal to change columns.exe/D:\foxa. Remember. Double Bottom: http://208. If it is again repelled. and IBM now sits at the same level that previously caused supply to enter the market. This selling pressure exceeds the demand at that price and the stock retreats..PnF University formed. the selling pressure was enough to force IBM back to $57.149. the Double Top Break. IBM rises to $60 and meets selling pressure. In this example.62/cgi-bin/foxweb. When the chart is able exceed the this support level and fall another box it gives the double bottom break. Demand is now in control of this stock. Double Bottom Double Bottom Break The Supply and Demand Scenario.wuniv?email=neowaver@hotmail. The only way to find out if the sellers are still operating at that price is to see how IBM negotiates that level.. By exceeding this level of resistance the Point and Figure chart gives its most basic buy signal. This is causes a three-box reversal back up into a column of X's. the chart reverses to O's from X's.108. 3) The question now is whether the sellers that forced the stock back before are still there. If it instead is able to move to $61.

Instead of IBM exceeding the previous point of resistance. supply wins the match. The reason supply overtook demand is not important. The stock encounters selling pressure which drives IBM back down the chart to the 54 level where demand previously took control providing support. the buyers are not there as before and the selling pressure persists until the stock exceeds that level of support. supply and demand cause stocks to move up and down and nothing else.com&lesson=2&page=2 (3 of 5) [4/19/2001 8:53:05 PM] . 3) Summary: Supply wins and the probability of lower prices come into play. Supply again takes over and the chart reverses back down to 53 exceeding the support at 54 and creating a double bottom sell signal at 53. http://208..wuniv?email=neowaver@hotmail. What is important is knowing that supply is in control.108. However this time. it instead reversed and exceeded the previous level of support. Here the stock first reverses down into O's to the 54 level. pattern.. for in the end.exe/D:\foxa.149.PnF University 1) In this 2) Demand comes into the stock with the price rising to 57 and reverses the chart into a column of X's.62/cgi-bin/foxweb.

exe/D:\foxa.PnF University More Examples: Here the stock rises to $60 a second time where it is repelled.. We call that a rising bottom.wuniv?email=neowaver@hotmail. demand regains control and exceeds the previous top at $57 giving the double top buy signal. This is one of the great advantages of Point and Figure charts. This is clearly shown on the chart as the price where columns of O's stopped.. one of the most basic patterns. There is no mistaking whether a stock gave a buy or sell signal. It signifies that supply is becoming less a factor in driving the stock.com&lesson=2&page=2 (4 of 5) [4/19/2001 8:53:05 PM] . This shows there is resistance at that level. The rising bottom shows us that supply is getting weaker providing added guidance when evaluating the supply-demand relationship of the underlying stock. to the pattern this time.108. The Bearish Signal http://208. after holding the support. demand is getting stronger as the last column of X's exceeds the previous column of X's giving a double top buy signal. an added clue. This stock found good support at 54. On the other side of the coin. At this point we do not have enough pieces of the puzzle to say whether to sell the stock.62/cgi-bin/foxweb. As we conintue through the university all the different pieces will start to come together. The Bullish Signal We add one more dimension. In this next pattern. the last column of O's does not extend down as low as the previous column of O's.149. The column of O's exceeding the previous column of O's gives the double botom sell signal. They are as clear as it gets. In this example.

The Bullish and Bearish Signals here are part of Double Top/Double Bottom patterns but when analyzing charts with all patterns types recognizing a series of higher bottoms and tops or lower tops and bottoms is crucial in making the right trade or investment decision.108. Selling pressure however is increasing as evidenced by the lower column of O's.. you can see how simple this method is to grasp.62/cgi-bin/foxweb. By now. These clues simply suggest demand is losing strength and supply is gaining strength.149. Next http://208. All other other patterns we will cover are expansions of this basic form.exe/D:\foxa.wuniv?email=neowaver@hotmail.PnF University Demand in this case is becoming weaker as the last column of X's fails to reach the previous level. So far we have discussed the Double Bottom and Double Top.com&lesson=2&page=2 (5 of 5) [4/19/2001 8:53:05 PM] ..

. Supply gains control and the chart reverses into O's. They are the Double Top Buy signal and the Double Bottom Sell signal.univ?email=neowaver@hotmail. Supply then regains control of the chart and it reverses back into O's where it falls to the previous support. When the chart is able exceed the this resistance level and rise another box it gives the double top break. in X's. (1 of 5) [4/19/2001 8:54:30 PM] . Chart Patterns Battle Between Supply and Demand.149. In this case the stock exceeded the previous column of O's. Demand gains control and the chart reverses into X's. Here the double bottom is http://208.69/cgi-bin/foxweb.108.com&lesson=2&page=2. The Double Top Break A buy signal shows demand is in control of the stock. Here the double top is formed.PnF University Welcome: Lesson 2: Part 1. The Double Bottom Break A double bottom break occurs when a chart. There are two basic signals that develop. It occurs when a column of X's exceeds the previous colomn of X's. falls to support. in O's. The PnF Chart depicts the battle between Supply and Demand. Double Top Break A double top break occurs when a chart. These are the two most basic patterns and it is imparative that you understand them. runs into resistance.. Double Top A sell signal shows supply is in control. Demand then regains control of the chart and it reverses back into X's where it rallies to the previous resistance.exe/D:\foxa.

If it is again repelled. and IBM now sits at the same level that previously caused supply to enter the market. Double Top: 1) For example. Demand is now in control of this stock.69/cgi-bin/foxweb. the chart reverses to O's from X's. then we can say that demand has prevailed at this price by exceeding the level where supply had previously gained control.108. This is causes a three-box reversal back up into a column of X's. If it instead is able to move to $61. By exceeding this level of resistance the Point and Figure chart gives its most basic buy signal. Remember.PnF University formed. 2) Over the next few weeks demand once again creeps back into the stock and causes the price to rise to $60 per share. the selling pressure was enough to force IBM back to $57.149..univ?email=neowaver@hotmail. IBM rises to $60 and meets selling pressure. 3) The question now is whether the sellers that forced the stock back before are still there. This selling pressure exceeds the demand at that price and the stock retreats. Double Bottom: http://208.. the Double Top Break.exe/D:\foxa. it requires a three-box reversal to change columns.com&lesson=2&page=2. When the chart is able exceed the this support level and fall another box it gives the double bottom break. In this example. The only way to find out if the sellers are still operating at that price is to see how IBM negotiates that level. (2 of 5) [4/19/2001 8:54:30 PM] . then the sellers are still there. Double Bottom Double Bottom Break The Supply and Demand Scenario.

supply wins the match.univ?email=neowaver@hotmail. Instead of IBM exceeding the previous point of resistance. The stock encounters selling pressure which drives IBM back down the chart to the 54 level where demand previously took control providing support. the buyers are not there as before and the selling pressure persists until the stock exceeds that level of support. supply and demand cause stocks to move up and down and nothing else. What is important is knowing that supply is in control.com&lesson=2&page=2. it instead reversed and exceeded the previous level of support. The reason supply overtook demand is not important. http://208.PnF University 1) In this 2) Demand comes into the stock with the price rising to 57 and reverses the chart into a column of X's. Supply again takes over and the chart reverses back down to 53 exceeding the support at 54 and creating a double bottom sell signal at 53. 3) Summary: Supply wins and the probability of lower prices come into play.. Here the stock first reverses down into O's to the 54 level. for in the end..69/cgi-bin/foxweb.149.108. However this time. (3 of 5) [4/19/2001 8:54:30 PM] . pattern.exe/D:\foxa.

to the pattern this time. This shows there is resistance at that level.PnF University More Examples: Here the stock rises to $60 a second time where it is repelled.. In this example. There is no mistaking whether a stock gave a buy or sell signal. demand regains control and exceeds the previous top at $57 giving the double top buy signal. In this next pattern. (4 of 5) [4/19/2001 8:54:30 PM] . This is clearly shown on the chart as the price where columns of O's stopped. They are as clear as it gets.com&lesson=2&page=2. This is one of the great advantages of Point and Figure charts. an added clue.. The Bearish Signal http://208. The column of O's exceeding the previous column of O's gives the double botom sell signal. demand is getting stronger as the last column of X's exceeds the previous column of X's giving a double top buy signal.69/cgi-bin/foxweb. On the other side of the coin. The rising bottom shows us that supply is getting weaker providing added guidance when evaluating the supply-demand relationship of the underlying stock. one of the most basic patterns. The Bullish Signal We add one more dimension. As we conintue through the university all the different pieces will start to come together. after holding the support. This stock found good support at 54. We call that a rising bottom. It signifies that supply is becoming less a factor in driving the stock.149.exe/D:\foxa.univ?email=neowaver@hotmail. At this point we do not have enough pieces of the puzzle to say whether to sell the stock.108. the last column of O's does not extend down as low as the previous column of O's.

PnF University Demand in this case is becoming weaker as the last column of X's fails to reach the previous level. All other other patterns we will cover are expansions of this basic form. Next http://208.69/cgi-bin/foxweb. (5 of 5) [4/19/2001 8:54:30 PM] . By now.univ?email=neowaver@hotmail. The Bullish and Bearish Signals here are part of Double Top/Double Bottom patterns but when analyzing charts with all patterns types recognizing a series of higher bottoms and tops or lower tops and bottoms is crucial in making the right trade or investment decision.108.. So far we have discussed the Double Bottom and Double Top. you can see how simple this method is to grasp.exe/D:\foxa. Selling pressure however is increasing as evidenced by the lower column of O's.com&lesson=2&page=2. These clues simply suggest demand is losing strength and supply is gaining strength.149..

In the same respects of a Bullish Catapult being a confidence builder the Bearish Catapult is a confirmation of a stock breaking down.com&lesson=2&page=4 (1 of 4) [4/19/2001 8:55:49 PM] . These two signals together clearly show supply coming into control of the stock and demand drying up...exe/D:\foxa. Bottom Break.... two sell signals in a row along with a lower top. Chart Patterns Bearish Catapult This can be interpreted exactly opposite the Bullish Catapult formation and is particularly useful in timing short sales as it clearly shows supply in control. http://208.PnF University Welcome: Lesson 2: Part 1 continued.108. Completed: A triple bottom followed by a double bottom break Let's break this down some more. which you have already learned is very negative for the stock.wuniv?email=neowaver@hotmail. First the Triple Bottom .. Interpreting what this formation is telling us we first see the Triple Bottom break. Watch carefully for this pattern because it suggests lower prices from the underlying stock..69/cgi-bin/foxweb.149. Below is an example of how it is formed... Then the Then the Double Double Bottom. The Triple Bottom sell signal is then followed by a lower top and a Double Bottom sell signal..

This sounds a little backwards but what is happening is that the chart is a bit confused. To qualify as a Triangle. As the lower tops and higher bottoms develop the chart comes to a point creating the triangle look of the pattern. you would pick the one on the left. very easy to see which stocks are rising and which are breaking down. If they are both recommended on a fundamental basis.108.PnF University Looking at the two stocks to the right.com&lesson=2&page=4 (2 of 4) [4/19/2001 8:55:49 PM] . it will give a double top buy signal. A break to the upside designates a Bullish Triangle and a break to the downside designates a Bearish Triangle. Bullish Triangle If the pattern resolves itself up.149. Bullish Catapult Bearish Catapult The Triangle Formation The Triangle formation is easily identified by the higher bottoms and lower tops. The beauty of Point and Figure is that it is very visual.exe/D:\foxa. When the chart comes to a point either supply or demand will have to gain control and either a double top break or a double bottom break will be given.. Which one would you buy? Clearly. the pattern must have at least five vertical columns. Bearish Triangle If the pattern breaks down the match is won by supply.wuniv?email=neowaver@hotmail. Examples of the Bullish and Bearish Triangle are below. in the in the same sector and at the same price. 5 columns needed to complete a triangle.69/cgi-bin/foxweb. http://208. Spread Triple Top Pattern and Spread Triple Bottom Pattern. The Double Bottom sell signal suggests that the probability is lower prices in the stock.. There is no clear winner in the battle between Supply and Demand. The Double Top buy signal simply suggests that demand has won the match and the probability is higher prices in the stock.

You have studied the fundamentals of the two stocks and are now trying to determine which stock to buy.com&lesson=2&page=4 (3 of 4) [4/19/2001 8:55:49 PM] . The stock still exceeds the 55 level it tested three times but there was a "spread" between the second and third atempt. The reason is not important. If the stocks exceeds that level. Spread Triple Top break.149. Which stock do you select? Stock A: Spread Triple Top Stock B: Spread Triple Bottom Without the chart patterns shown here. therefore both stocks should do about as well http://208. You need not know any more.69/cgi-bin/foxweb. The testing of the support or resistance level is not completed in three consecutive columns. then on the third trip back up it only reaches 53 before it pulls back again. the stock rises to a certain price level and is repelled two times. Spread Triple Top A gap in between three columns of X's at the same level. It's the moment of truth. a stock may rally and test 55 twice. the sellers are still there. exceeds the spread triple bottom. Spread Triple Bottom. you would be in a quandary. For example.exe/D:\foxa. the stocks are trading at the same price. The same philosophy applies with these patterns as the Triple Top and Bottom.wuniv?email=neowaver@hotmail. if the stock is repelled again at this level of resistance. there are apparently sell orders there. This is one that is best understood by looking at an example. Since the stock was repelled twice at that same level.PnF University This pattern is basically the same as the triple top and triple bottom with one exception. The third attempt at that price is successful by the stock moving through the level shown by a column of X's exceeding the point of resistance.. A column of X's exceeds the spread triple top. Looking at the fundamental data alone. Simply stated. In each case. Notice that in the following two patterns. both stocks are equal. Both stocks are in the same industry group and pay about the same dividend.. Consider that both stocks are fundamentally sound and each is being recommended by a major firm on Wall Street. Spread Triple Bottom A gap in between three break column of O's at the A column of O's same level. What is important is that you know there are sellers at that particular level. then demand has overcome the supply that previously caused it to reverse.108. The only way to know if demand can overtake the selling pressure is to see how the stock negotiates the level again. Then on the fourth atempt it is able to break the 55 level. We will take a look from the Triple Top perspective.

If you had the benefit of evaluating the Point and Figure charts the selection process would become much easier.wuniv?email=neowaver@hotmail.149.com&lesson=2&page=4 (4 of 4) [4/19/2001 8:55:49 PM] .69/cgi-bin/foxweb..exe/D:\foxa. This simple exercise shows why charts are so important and why you can achieve the best results in the market when you use both fundamental and technical analysis.108. With the information and charts above which stock do you select? It doesn't take an in-depth understanding of this method to determine Stock A is on a buy signal with the probability of higher prices and Stock B is on a sell signal with lower prices likely.PnF University in the future.. Not so. Next http://208.

html [4/19/2001 8:58:51 PM] .com&lesson=2&doc=questions.108.149.PnF University http://208.exe/D:\foxapps\f.69/cgi-bin/foxweb.mail=neowaver@hotmail...

.PnF University http://208.69/cgi-bin/foxweb..mail=neowaver@hotmail.108.149.exe/D:\foxapps\f.com&lesson=2&doc=exercises.html [4/19/2001 9:02:54 PM] .

not laggards.com&lesson=3&page=1 [4/19/2001 9:05:08 PM] . It will be answered shortly (within two business days). Lesson 3 Contents: Part 1: Relative Strength Evaluating Potential Scenarios Formula Part 2: Coca-Cola Example Wal-Mart Example Various Examples Test yourself at the end of the chapter to sharpen your skills.108.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. In any market there are always leaders and laggards. then click on the question mark icon below to email us your question. Message Board Our goal as investors. this chapter will teach you how to gauge those signals against the market using relative strength.PnF University Welcome: Lesson 3: Introduction Now that you understand how patterns develop and what is a bullish or bearish signal. Next http://208. The tool we use to determine which stocks and sectors are the leaders is Relative Strength.67/cgi-bin/foxweb. please check the "Questions" section to see if it has already been answered. In this section we will list any upcoming live online classes specifically covering this chapter.149. If you have any questions. is to have a portfolio of leaders. If it has not.

61/cgi-bin/foxweb.. Error message: User program "File 'exercises. More information about the error: Error message: User program "File 'exercises. Please wait a few minutes and try again. There is a problem with the database. please use Copy/Paste to put this information into your email. non-existent or has not been compiled Line of code with error: Line number of error: 0 Program with error: Server: Browser: Logon: FoxWeb 61 4..MSIE 5. If we don't have this info.0.html [4/19/2001 9:05:25 PM] .149. DWA Support or call (804) 320-8511 Database error an emergency DWA Support (Page Administrator) http://208. non-existent or has not been compiled Code with error: Lineno: 0 Program: FoxWeb dbf: recno: 0 What were you doing (be Very specific): Email addresses to report a. you should report it. We are probably aware of it.Error! FoxWeb Foundation Program Darn! You have received an error! Here is what happened: Error: File 'exercises.exe/exercises.0 CKREIF Important! If you are sending email. If you get the error again.html'" is invalid.108.html' does not exist. we can't find the problem.html'" is invalid.

html [4/19/2001 9:06:24 PM] .149.mail=neowaver@hotmail.PnF University http://208..com&lesson=2&doc=exercises.exe/D:\foxapps\f..61/cgi-bin/foxweb.108.

5 8.00 3.PnF University Lesson 3: Part 1 .5 7. The basic objective of all investors is to outperform the broad averages and the only whay to do that is to own stocks that are outperforming the averages.75 1.25 0.0 8.0 7.25 1.com&lesson=3&page=2 (1 of 3) [4/19/2001 9:07:14 PM] . Each stock is fundamentally sound and the Point and Figure trend charts are similar.75 3.108.25 2. you can see a progression of the RS daily on the DWA site).50 0.Relative Strength One of the most important tools in a Point and Figure toolbox is the relative strength chart.149.62/cgi-bin/foxweb.50 4.wuniv?email=neowaver@hotmail. Relative strength calculations help investors choose between stocks that superficially appear to be similar.5 6. Which one do you choose? The logical selection would be the stock with the positive relative strength chart.0 5.25 3.25 4.00 ----+-+-+--------------| | | ----| | | -------------| | | ----| | 3 -------------| | X O ----| | X O -----------| | 2 5 ----| | X O -----------| | 1 ----| | X -------------| | C ----| | X -------------| | X ----| | B -------------| | 9 ----| | 2 -------------| | 1 ----| | X -------------7 | C ----4 O 8 -------------A O 7 ----8 6 X -------------7 O X ----X O | -------------1 | | ----X | | -------------X | | ----A +-+--------------9 9 9 9 0 6 7 8 9 0 http://208.75 2.5 5.50 1.75 0. These Example of an RS chart from the DWA database 9.50 3.00 2.exe/D:\foxa. Let's say you were evaluating three stocks in the same industry group.. Relative strength charts are very long-term and are only updated once a week (although..00 0.0 6.0 4.75 4.50 2. The best way to tell whether your stock is outperforming is to evaluate its performance relative to a market average.00 1. The only difference between the three stocks is that only one has a positive relative strength chart.

It just means it is out performing or under performing the market. In many cases. At DWA there are currently two Relative Strength (RS) calculations to use. it has under performed just as the RS chart suggested. and the other is one developed by DWA. the RS versus the sector.149. A Relative Strength (RS) buy or sell signal lasts on average 2 to 2 1/2 years. For instance. In such markets. if the market goes up 15% and a negative RS stock goes up 5%. A RS on a "buy" signal is one that has broken a double top and an RS on a "sell" is one that has broken a double bottom. it pays to keep lists of stocks that are demonstrating superior relative strength versus the broad averages. Have patience and try to make long stock commitments only when the odds are in your favor. Conversely. but when they do you should listen.exe/D:\foxa. These strong stocks will be your buy list when the offensive team comes back on the field. RS Reading is plotted on a PnF chart. so it is very important to watch as well.108. relative strength really comes in handy as these charts clearly show those stocks which are outperforming relative to the averages even though they might be declining in price.PnF University charts don't speak often. There are four potential scenarios for a PnF chart. the market is in a condition where the defensive team should be on the field and you should not be buying stocks but moving to 100% cash doesn't make sense. Positive relative strength doesn't mean the stock has to go up and vice versa.. A column change can indicate performance for the next 6 to 8 months. one the standard and main RS versus the Dow Jones Industrial.. They are as follows: RS on a http://208.62/cgi-bin/foxweb. A double top signals a positive relative strength reading and a double bottom signals a negative relative strength reading. if the market goes down 20% but a positive RS stock only goes down 10% then it has done as expected.wuniv?email=neowaver@hotmail. We will concentrate primarily on the RS versus the Dow. performed better than the market.com&lesson=3&page=2 (2 of 3) [4/19/2001 9:07:14 PM] . When looking at a Relative Strength Chart we examine the buy and sell signals as well as the current column. In down markets.

wuniv?email=neowaver@hotmail. RS on a Sell signal and in a column of O's.. This means the stock has been consistently out performing. This is the strongest reading for an RS chart. RS on a Sell signal in a column of X's. This is good for short term traders that are in and out of stocks.com&lesson=3&page=2 (3 of 3) [4/19/2001 9:07:14 PM] . It has been consistently out performing and still is. is taking a breather.PnF University Buy signal in a column of X's. The stock has been under performing most of the time but currently may be on a run.108. RS on a Buy signal in a column of O's.. Next http://208. The worst of all RS conditions.149. Has been and still is under performing the market.62/cgi-bin/foxweb.exe/D:\foxa.

.5 9.0 10. multiply by 1000 and then plot the resulting number exactly as you would a normal Point and Figure chart.0 9. We first look to see if the chart can continue in the same direction.) Your stock is trading at $80 per share and Dow Jones is at the 10. The charting principles are the same as when updating these charts. We pick up the RS chart with this picture.. To determine how your stock is trading relative to the Dow.com&lesson=3&page=3 (1 of 2) [4/19/2001 9:08:00 PM] .6/cgi-bin/foxweb.5 11.PnF University Lesson 3: Part 1 Relative Strength (Cont.5 10.0 X <-The RS plotted Date: 2/2/?? Dow Jones: 10000 Stock Price: 80 Calculation: 80 divided by 10000 x 1000 =8 A different example.108. If we divide $80 by 10. If not then check for a reversal...wuniv?email=neowaver@hotmail. This calculation is perfomed on a weekly basis using Tuesdays closing prices. Consider the following example.000 level (numbers created for easy calculation).149. http://208. (This example is used just to show you the math. multiply by 1000 we get a figure of 8.0 8. This formula gives you the RS reading which is then plotted on a Point and Figure chart.exe/D:\foxap.) The stock price is divided by the Dow close and then multiplied by 1000.0 11. 12.5 8.5 12.000. This can then be plotted on a graph similar to the one we use for plotting the actual price of the stock. you would simply divide the price of the stock by the Dow.

PnF University Date: 3/2/?? Dow Jones: 11.5 5.5 so we use 7.5 8.36 is not enough to plot 7..exe/D:\foxap.0 6.0 4. In the case of an IPO however.0 8.36 7. 9.36 as you can see is not a number on the chart but as with the trend charts we either round up or round down to the correct amount. While the stock price has fallen and the market has fallen.5 7. XYZ Corp: 81.79 is not enough to fill in the 8..0 5.149.5 6. For stocks that have been trading for some time you can get a history of the stock price and Dow and do your own calculations to determine if the RS has been moving up or down.5 8. Just keep a running list of the readings. the relative strength calculation has actually moved higher.0 box so we mark up only to the 7. You must determine which direction the chart is heading before you can plot it. X X X X <--added another X X X X X When starting an RS chart it is just like beginning a trend chart in PnF.6/cgi-bin/foxweb. This means the stock is performing better relative to the market.0 7.5 6.5 9. Like the first example 7.5 5.0 5.5 9.5 7.0 Date: 3/9/?? Dow Jones: 9500 XYZ Corp: 74 Calculation: (74 / 9500)(1000) = 7. Next http://208. the history is not there and you must wait for the calculations to guide you.0 4.wuniv?email=neowaver@hotmail.0 7.com&lesson=3&page=3 (2 of 2) [4/19/2001 9:08:00 PM] . 7.5 box.0 6.5 9.108.0 8. The Dow has dropped as has the stock but the RS has improved.79. Calculation: (81 / 11000)(1000) = 7.75 X <--RS plotted.000.

50 2.25 3.5 8.75 2.75 4.3 or A.00 | ----8 7 ----5 A ----B C ----X B ----8 4 ----X A ----8 5 ----B A ----X 7 ----X X ----4 | 8 9 --5 7 | X | | +-6 O +-------O X O | O X 9 +-------9 O | +---1 <--1/12/99 | 3 | +---6 B ------| 8 X O +---9 X O 5 --| A | 3 X +---+-+-O X --| | | O +---+-+-------| | | +---+-+-------| | | +---+-+-------| | | +---+-+-------| | | +---+-+-------| | | 9 9 9 9 0 +-8 9 +-0 ----- Remember back to the very beginning in "Attributes of a chart" the description of the numbers and letters in the columns of PnF chart . 1999 to June 19. B.75 0.69/cgi-bin/foxweb.com&lesson=3&page=4 (1 of 4) [4/19/2001 9:08:58 PM] .5 7.1.25 0.75 3. The current reversal up to X's is a positive sign but an RS reading of 6.0 8. Below are a couple of examples of RS charts along with their trend charts.50 3.0 4.5 would be required for a Relative Strength buy signal. With so little action on RS charts often there is no action during a given month. C? They designate the first action of a given month. They serve as useful guides to help you determine how a stock was performing at a given time.438 DJIA: 10557. January 12. 2000 KO: -16.25 4.25 2.exe/D:\foxa. We use the same numbers and letters in a RS chart.00 3.438 DJIA: 9474.PnF University Welcome: Lesson 3: Part 2 .. The attributes of the chart are marked to correspond to the RS chart.Examples Let's look at an example of a Relative Strength chart with Coca-Cola (KO) Clearly KO has under performed since the RS sell signal on 1/12/99.50 4.8% DJIA : +11. http://208.00 1. 2000 KO: 54.149.5 6.108.00 2.2.68 June 19.83 Performance from January 12..4% 9.0 6.5 5.wuniv?email=neowaver@hotmail. 1999 KO : 65.0 5. Some Examples: Wal-Mart Stores (WMT).5 9.0 7.

0 --+-+-X --X O --4.exe/D:\foxa.0---+-+-+---+-----6.25 X O X 5 X 4.75 | | | | 0. Look at the RS chart for 2000 where in February (2) it has again reversed down.00 -+-+-+---+-----0.com&lesson=3&page=4 (2 of 4) [4/19/2001 9:08:58 PM] .00 3 7 +-9 +-0 --- You will notice that WMT for 1999 was trading above its BSL which you will remember as bullish. Now look at the trend chart.50 -+-A 4 --+-----2.75 X 1 X | 2.5 | | | C O 5.50 -X 8 X --+-----3.5 | | | | 7.108. Find the A for October in 1999 and you will see that the chart breaks a triple top and continues up.50 -X O X O X ----4. On the trend chart we see that WMT actually started to break down in January (1) of 2000. The RS indicated that WMT would out perform the market and we see on the trend chart that it did in fact do well. Find the A for October in 1999 and you will see that the chart breaks a triple top and continues up.50 -+-+-+---+-----1. Now look at the trend chart.25 X 1 X | 3.69/cgi-bin/foxweb.00 -C A X --+-----2.5 | | | | 6. it was under performing the market.75 | O | | 1. The RS indicated that WMT would out perform the market and we see on the trend chart that it did http://208.. Relative Strength Chart for WMT 7.. Look at the RS chart for 1999 and you will see that in May (5) the RS reversed down.75 X 5 X | 3.00 -X 4 X 8 +-----3.149.50 -+-+-+---+-----0. and stayed that way until October (A) when it reversed up.00 -+-1 X --+-----1.PnF University Trend chart for WMT.wuniv?email=neowaver@hotmail.75 A | X O A 2<-Feb 4.25 | | | |<-Year 1.0---+-+-+---X ---5.25 | C X | 2.25 9 9 9 9 | 0 0.

25 4.00 3.879 03/03/2000 5.5 7.75 4.75 1.25 4.620 02/25/2000 4.5 5.902 03/07/2000 4.0 5.PnF University in fact do well.75 0.5 7. 7.149.exe/D:\foxa.672 4.315 7.50 4. 02/15/2000 5.993 03/01/2000 4.5 6.50 4.25 2..69/cgi-bin/foxweb.25 0.076 03/02/2000 4.060 02/04/2000 5. Date Value 03/14/2000 4.00 | | | | -+-+-+---+---| | | | -+-+-+---X --| | | C O -+-+-X --X O -A | X O A 2<-* -X O X O X ---X O X 5 X -X 4 X 8 +----X 5 X | -X 8 X --+----X 1 X | -C A X --+----X 1 X | -+-A 4 --+----| C X | -+-1 X --+----| O | | -+-+-+---+----| | | | -+-+-+---+----| | | | -+-+-+---+----9 9 9 9 | 0 3 7 +-9 +-0 --- In order for WMT to reverse up on its chart it would have to move as high as 6. Looking at the calculations on the left you will see that WMT is improving but not enough for a reversal up.50 3.300 02/02/2000 5.75 2.108. You can immediately see that the RS chart does not move like the trend chart.0 4.867 03/13/2000 4.420 02/10/2000 5.00 3.920 03/08/2000 4.386 02/08/2000 5.006 next box down.50 which would be the 02/16/2000 5.301 02/14/2000 5.694 Plotted as 4.847 03/09/2000 4.25 1.50 0.com&lesson=3&page=4 (3 of 4) [4/19/2001 9:08:58 PM] . The trend chart above only lists part of 1999 to current.50 1. Compare this with the WMT RS chart. here is the DOW chart for some of 1999 and 2000.407 02/07/2000 5.756 03/10/2000 4.853 02/29/2000 4.50 2.5 5.502 02/11/2000 5. Here are the calculations for the WMT RS.75 because 02/18/2000 4.00.672 is not enough for 02/17/2000 4.00 1. It is much slower.633 <--The reversal down (*) 02/22/2000 4..672 4.0 6.305 02/01/2000 5.25 3.00 | | | | -+-+-+---+-----| | | | -+-+-+---X ----| | | C O -+-+-X --X O --A | X O A 2<-* -X O X O X ----X O X 5 X -X 4 X 8 +-----X 5 X | -X 8 X --+-----X 1 X | -C A X --+------ http://208.874 03/06/2000 4.25 3.0 6.422 02/23/2000 4.0 4. Highlighted are the months as above.50 3.487 02/24/2000 4.396 02/09/2000 5.75 3.75 3.75 4.5 6.136 02/03/2000 5.807 02/28/2000 4.0 5.wuniv?email=neowaver@hotmail.00 2.00 0. If the market continues to wan while WMT strengthens we could see a reversal up in the RS.

69/cgi-bin/foxweb.50 2. If WMT is under performing a chart that is breaking down this is bad news for the stock. Next http://208.75 2.75 1.50 0.wuniv?email=neowaver@hotmail.75 0. You can see on the chart the Dow started to break down in February .149.108.25 0. Look back up to the WMT trend chart and you will see that it continued to break down through March.com&lesson=3&page=4 (4 of 4) [4/19/2001 9:08:58 PM] .25 1..00 0.50 1..00 X 1 X | -+-A 4 --+-----| C X | -+-1 X --+-----| O | | -+-+-+---+-----| | | | -+-+-+---+-----| | | | -+-+-+---+-----9 9 9 9 | 0 3 7 +-9 +-0 --- WMT outperformed the Dow from October (A) until February (2).25 2.exe/D:\foxa.PnF University 2.00 1.

0 4.00 2..com&lesson=3&page=5 (1 of 6) [4/19/2001 9:10:07 PM] .6/cgi-bin/foxweb.50 | ----A 8 ----7 6 ----X C ----X 6 ----3 C ----7 The RS and trend chart mirror each other in that they each were moving up.00 3.wuniv?email=neowaver@hotmail.50 4.25 4.25 3.exe/D:\foxap.75 2.50 3.5 5. Trend Chart RS Chart 5.108.75 3.Examples Let's walk through a trend chart and its RS chart over the course of a year..75 4.PnF University Welcome: Lesson 3: Part 2 . The market at the same time had been moving down. http://208.149.

75 4.50 4.by the way.75 4. the RS reverses down and the trend chart shows a noticeable difference as it starts to break down.600 to 11.149.75 3.50 4.PnF University 6. The market during this time was starting to improve and had given a couple of buy signals.5 6. Look what the trend chart did in December (C).108.75 2. 6.400 improving considerably.wuniv?email=neowaver@hotmail.5 5..00 2.50 3. The poor trend chart was confirmed by the RS chart..6/cgi-bin/foxweb.75 2.50 | | ----+-+| | ----A +8 O ----7 O 6 O ----X B <--November C O ----X C <--December 6 O ----3 O C O ----7 +- The RS had reversed down in November (B) telling us that the stock was to under perform the market. It collapsed .50 3.0 5.00 3. The RS for this stock showed that it was not keeping up with the accelerated rate of the Dow http://208.exe/D:\foxap.00 2.75 3.50 In November.5 6.00 3.com&lesson=3&page=5 (2 of 6) [4/19/2001 9:10:07 PM] .25 3. do you know what pattern that is? The market during this time from November to December had climbed from 10.25 4.0 5. | | ----+-+| | ----A +8 O ----7 O 6 O ----X B <--November C O ----X C 6 O ----3 O C O ----7 +- Here the RS shows that for what ever reason this stock was not keeping up with the improving Dow.0 4.25 4.25 3.5 5.0 4.

108.0 5..75 4.75 3.25 4.wuniv?email=neowaver@hotmail.00 2.600. http://208. this stock continued up as did its RS into March while the market continued down to 9.5 6.25 3.400 to 10.0 4.149.5 5.50 3. It dropped from 11.6/cgi-bin/foxweb. However.75 2..50 | | ----+-+-----| | ----A +----8 O ----7 O X -6 O X ----X B 3 -C O X ----X C 2 -6 O X ----3 O X -C O ----7 +--- The trend chart bottomed and turned around nicely giving some buy signals in January.exe/D:\foxap.00 3.50 4.PnF University 6. The market at this time started to wain.750.com&lesson=3&page=5 (3 of 6) [4/19/2001 9:10:07 PM] .

00 2.75 3.0 5.610 3.50 3..75.50.001 3.75 4.517 <--X's are added 4.00 3. C O X ----X C 2 ---------6 O X ----3 O X ---------C O ----7 +-------------- In order for another X to be added to this RS chart the figures would have to reach 4.25 4.50 4.5 6.25 3. 6 O X ----X B 3 <--Plotted.775 3.210 3.592 3.com&lesson=3&page=5 (4 of 6) [4/19/2001 9:10:07 PM] .exe/D:\foxap.108.wuniv?email=neowaver@hotmail.919 3..764 3.50 Date 03/14/2000 03/13/2000 03/10/2000 03/09/2000 03/08/2000 03/07/2000 03/06/2000 03/03/2000 03/02/2000 03/01/2000 02/29/2000 02/28/2000 02/25/2000 02/24/2000 02/23/2000 02/22/2000 02/18/2000 02/17/2000 02/16/2000 02/15/2000 | | ----+-+---------| | ----A +------------8 O ----7 O X <--Top X.661 3.734 4.677 3.75 2. The stock performed very well from 3/7/00 to 3/14/00 with the chart actually rising from 3. Value 4.557 http://208.75 to 4.811 3.PnF University RS Chart Example with Calculations RS Calculations February and March 6.458 4.688 3.955 3.981 4.624 4.6/cgi-bin/foxweb.904 3.5 5.149.0 4.676 3.

exe/D:\foxap. Even if you feel a stock is now a "good value" .6/cgi-bin/foxweb. When the relative strength chart has a long column of X's up. It has happened all too often. Some stocks are so strong that their relative strength charts go strait up in a long column of X's. In the case of long columns we act without an actual signal. by waiting for the buy signal we would miss out on too much of a move. Investing is still an art..765 3.711 3. In this case. This is why it is important to evaluate the relative strength chart itself rather than simply accepting a positive or negative reading generated by a computer. Human nature causes us to hang on to any thread of hope that the stock we bought was the right one. you can see that if we had waited until the relative strength chart actually declined enough to exceed a previous bottom and give a sell signal.149.don't hold your breath. This helps ensure you have a stock with lots of life left.PnF University 02/14/2000 02/11/2000 02/10/2000 02/09/2000 02/08/2000 02/07/2000 02/04/2000 02/03/2000 02/02/2000 02/01/2000 3. the underlying stock would have to absolutely collapse to turn the relative strength chart negative by exceeding its previous bottom. Once all the technicals break down. If a chart is so negative that its RS chart shows a very long tail of O's down we would call the first three-box reversal back up the chart as turning positive. When making new stock commitments.588 3. Stocks whose relative strength has been positive for a long time might be close to turning negative.wuniv?email=neowaver@hotmail. it would have been too late as we would have missed to much of the move. The reciprocal is true as well. we will pay very close attention to the first three-box reversal in the RS chart.838 3. try to find stocks with relative strength charts that have turned positive within the past six months to a year. In fact we would consider it negative until the RS reverses back up. not a science. Otherwise.725 3.701 3. For the stock to turn from positive to negative relative strength.com&lesson=3&page=5 (5 of 6) [4/19/2001 9:10:07 PM] . A http://208.654 3..817 3. It simply makes common sense.108.770 Stocks with positive relative strength have a tendency to out perform those with negative relative strength.681 3. we tend to look to the fundamentals to bail us out. the chart would have to give a double bottom break. In this example.

Next http://208.exe/D:\foxap. Over time...149. Rather than sitting with the stock and wishing it back up.PnF University stock can stay a "good value" by not moving or. You have a much better chance of getting your money back with the good stock. why not find another stock around the same price in the same industry that has recently turned positive on its relative strength chart and is both fundamentally and technically sound? Sell the bad one and buy the good one. most investors will hold on for the long term in the expectation the stock will come back. As with all the lessons reading Tom's book along side will add some valuable information. worse.108. the stock declines to $24 and the relative strength chart turns negative.6/cgi-bin/foxweb. Let's say you bought a stock at $30 in the software sector. Let profits run not losses. Rather than take a loss. This mentality enables the investor to maintain a portfolio of losers by ignoring the losers and taking profits in the winners. Always re-evaluate your stocks whenever there is a change in direction in the RS chart.com&lesson=3&page=5 (6 of 6) [4/19/2001 9:10:07 PM] .wuniv?email=neowaver@hotmail. drop another 10 points.

149... Stacking odds in your favor. The RS calculations have proven successful towards this goal. We will cover Sector Relative Strength in Lesson 5.com&lesson=3&page=6 [4/19/2001 9:10:33 PM] . Even sectors must out perform or under perform the market at some point. you want to outperform the market and continually improve your chances at doing so.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.62/cgi-bin/foxweb.PnF University Welcome: Lesson 3: Wrap Up Relative strength is a calculation used for all stocks and indexes. One of the most important aspects of analyzing a chart is to know how it compares to the performance of the market. Lesson 3 Contents: Part 1: Relative Strength Evaluating Potential Scenarios Formula Part 2: Coca-Cola Example Wal-Mart Example Various Examples We will now test you to find your comprehension of the subjects discussed in Lesson 3. the sector you are invested in is out performing the bullish market and the stock you are invested in is out performing the sector that is out performing the market.108. Next http://208. if the market is bullish. that is stacking the odds in your favor. Naturally..

Select One - Dow Jones: 11000 Stock Price: 30 RS Reading: . RS on a sell signal in a column of O's is a great stock to mortgage your house.) Dow Jones: 10500 Stock Price: 102 RS Reading: . An RS on a "buy" signal can be in a column of O's b.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. 1-3) Complete the formula for the Relative Strength reading by selecting the correct entry for each of the fields. ( -Select One- / . take a personal loan. An RS on a buy signal and in a column of X's is the strongest reading for an RS chart d.Select One - ) = RS Reading 4-7) Answer the following with yes or no.PnF University Testing for Lesson 3: Relative Strength. max your credit cards to put your whole life savings into yes yes yes no no no yes no 8-11) Calculate the RS reading for each of the following: (Numbers rounded to the third decimal.149.html (1 of 3) [4/19/2001 9:10:51 PM] .Select One - Dow Jones: 10200 Stock Price: 90 RS Reading: .108. a.Select One - ) ( .com&lesson=3&doc=test.Select One - 12-19) Determine the RS risk for the following stocks: Relative Strength Chart Trend Chart http://208.61/cgi-bin/foxweb.Select One - Dow Jones: 10500 Stock Price: 29 RS Reading: . Positive relative strength means the stock only goes up c.

--24 X 23 X X O 22 X X O X O 21 X O X O X O 20 -X ------X O X O X -----Med 19.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.00 --| 8 ---7 6 ---4 X ---X 7 ---| | | O O 9 A O O O --| | 7 | 6 O 4 O 1 8 X | X | --| Evaluate the RS chart. would you buy this stock here? Evaluate the RS chart.00 --+-+---+-------1.html (2 of 3) [4/19/2001 9:10:51 PM] O --O O Med O .25 X O 7 | 3.75 | 9 X O X 2. Choose one -----X 6 O-X O X O------------ 31 X 30---------X O 29 X X O 28 X O X O 27 X O X O 26 6 O O 25 O X ----O 24 O X O 23 O X 22 O X ----X X X X X X O X X O X 7 ---* * Given the RS information only.5 X O X O X O X * 18.75 34 33 32 31 30 29 28 27 26 25 24 23 * --* 4 X X X X O X X O 3 --O X O X O * --X O X O X O X X O X X O X --7 O X -O X O * Med O X * 5 * * ---------Bot --* * Given the RS information only. would you buy this stock here? http://208.75 2.25 2.00 2. Choose one Choose one Stock # 2 3.0 X O --O ------O * ---Given the RS information only.com&lesson=3&doc=test.25 1. Choose one Choose one Stock #3 3.00 1.75 2 | | 3.25 2.75 1.50 1.00 -A 6 X O 7 ----2.5 X O X X O X O 7 19.75 1.00 1.50 --+-3 --C X ----2.50 2.149.75 2.50 1.00 X X 1 X X | | --| O O O O A O O 3 5 7 9 3 ----------X 2 O ------1 O X 5 ------X ----------- 25 ------------------.25 | | 1 2.61/cgi-bin/foxweb.PnF University Stock # 1 2.50 --X O --+-------3.25 1.108.50 2. would you buy this stock here? Evaluate the RS chart.0 X O X O X O --O X ---18.

108.25 1.html (3 of 3) [4/19/2001 9:10:51 PM] .149.0 X O X O X 18.PnF University Choose one Stock #4 2. would you buy this stock here? Choose one Score Test Submit http://208.50 1.75 ----| | ----X B ----X X ----5 X | | | O O O 2 | | X X C X X | | Evaluate the RS chart.61/cgi-bin/foxweb.00 0.50 2.75 1.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.com&lesson=3&doc=test. Choose one | | O O 3 B | | 3 X 2 X X --O O 5 --- ----- 28 27 26 25 ---------6 24 * X 23 * X 22 X * X 21 X O * X 20 X O --* X 19.00 1.25 2.5 O X O X X X O X O --X O X O 7 O X Med O X O X O X O O X O X ----O X O ----* * Given the RS information only.5 X O X X 19.

We have all had experiences like that. Triple Bottom Sell Signal. The only way we know whether the selling pressure has been exhausted at a particular level is if the stock is able to exceed that price.63/cgi-bin/foxweb. The first two times the stock holds and reverses up. In other words. the wider the base from which a stock breaks out the higher the stock will rise. http://208.. If more sellers are willing to sell their stock at that level than buyers are willing to buy. the stronger the breakout will be when it comes.a chart exceeds the level that previously caused pattern that rises to a certain the stock to reverse down. There are many reasons why a stock will encounter supply at certain levels. the stock will decline. it is repelled by sellers. you are in essence creating supply at that level. The thought that probably crossed your mind as you saw the stock lose value was that if the stock got back to even you were out! This is a perfectly normal human reaction. If the stock is repelled again..exe/D:\foxa. The third time there is not enough demand to cause the chart to reverse and instead it exceeds the two previous bottoms giving the triple bottom sell signal.PnF University Triple Top Buy Signal The Triple Top is exactly what The buy signal is given when the stock the name suggests . It was said years ago that the degree to which a stock will rise is in exact proportion to the time the stock took in preparation for that move. This is why we consider the triple top break a stronger pattern than the double top.wuniv?email=neowaver@hotmail. The third time the stock rises to that level. price level three times. The more times a stock pulls back from a resistance level. the stock immediately declined. When you place that order to get out at your break-even point. Instead of rising. like the Triple Top.108. The first two times the stock visits that level. the sellers are still there. Think back to a time when you bought stock thinking it was at a bottom or at least an opportune price level to buy. It is characterized by a stock falling to an area of support three times. it forms the Triple Top. has a high degree of reliability. The Triple Bottom sell signal.com&lesson=2&page=3 (1 of 3) [4/19/2001 9:13:02 PM] .149.

He checks the price frequently and notices that his stock is still around the price he paid for it. moment an investor who buys a stock at $31 per share and then leaves on vacation for one month. Whether this investor chooses to do anything about the signal or not. If the investor does nothing other than increase his awareness of a potential decline. This pattern is a confidence builder. Following the pullback. The Catapult is created when a stock gives a Triple Top buy signal whic is followed by a pullback producing a higher bottom. The charts below depict a Bullish Catapult formation. Not bad for a market that had been volatile for the past month. By doing so patterns such as this one will not sneak up on you. he should at least be aware of it.com&lesson=2&page=3 (2 of 3) [4/19/2001 9:13:02 PM] .. The Bullish and Bearish Catapult Formation The Bullish Catapult is a combination of the Triple Top buy signal and the Double Top buy signal. it suggests that the risk in that position has increased tremendously. It is imparative to update the charts.149. demand regains control and the stock reverses back up and gives a Double Top buy signal.PnF University Consider for a What is he missing in this puzzle? What he is missing is that a battle between supply and demand has been completed with supply winning the match..63/cgi-bin/foxweb. He feels comfortable with the stock as the fundamentals remain in place.exe/D:\foxa. The Triple Bottom sell signal does not mean that the stock will cave in immediately. only down a point.wuniv?email=neowaver@hotmail.108. he is far ahead of the investor who holds the same position without any warning. The probability of lower prices is very high. http://208.

63/cgi-bin/foxweb..PnF University Bullish Catapult First the Triple Then the Double Top.)The Triple Top is saying that the stock has a very high probability of rising in price. and the fundamentals are superior in the stock (we will cover all of these other aspects in later lessons. the underlying sector is in a bullish mode. Notice how the column produces a higher bottom. The resumption of trend completes the Catapult by giving a Double Top buy signal..5% in bull markets. Notice the Triple Top buy signal followed by the pullback into a column of O's. Top.108. this type of pattern has a success probability of 87.wuniv?email=neowaver@hotmail.. Next http://208. assuming the market is in a bullish mode. To better understand what the Catapult is saying. 1. This is why it is called a confidence builder..)The subsequent reversal producing a higher bottom suggests that supply is beginning to dry up or become a less significant factor.. In fact.com&lesson=2&page=3 (3 of 3) [4/19/2001 9:13:02 PM] . 3. 2. Then the Double Top Break Completed: A triple top followed by a double top break.149.. let's look at each piece of the pattern as illustrated above.).)The resumption of trend and subsequent Double Top buy signal simply confirms the Triple Top. This is a pattern that you can be aggressive with especially when the overall markets are in a bullish mode.exe/D:\foxa.

The subsequent reversal of the stock from these two tops must give a Double Bottom sell signal. This pattern has a high degree of reliability. Shakeout Pattern First.149.108. it must have the following attributes. The stock must be in a strong up trend and trading above the Bullish Support Line. 2. this pattern is in a strong up trend. It is called the Shakeout because the pattern is deceiving causing some holder of the stock to sell.61/cgi-bin/foxweb.exe/D:\foxa... 3. 1..com&lesson=2&page=5 (1 of 4) [4/19/2001 9:13:21 PM] . The stock must rise to a level where it forms two tops at the same price forming a Double Top.PnF University Welcome: Lesson 2: Part 1 continued. For the pattern to be a true Shakeout formation.wuniv?email=neowaver@hotmail. Chart Patterns The Shakeout Formation. http://208. in effect "shaking out" these weak holders.. The Shakeout is relatively new and we have found it very useful in real-life application. Then the chart gives a Double Bottom sell signal.

When the last top is made in the seventh column. we start looking when a stock falls 18 O's down. This pattern shows seven columns of rising bottoms and rising tops. In fact. To qualify for a Long Tail Down.108. The next three box reversal to the upside often leads to a decent bounce.exe/D:\foxa.. This pattern is the reverse of the Bearish Signal Reversed. Action of this type indicates supply is in control and getting stronger. break a double top.61/cgi-bin/foxweb. When evaluating these plays we want to find stocks that have pulled back to http://208.com&lesson=2&page=5 (2 of 4) [4/19/2001 9:13:21 PM] . the stock reverses and without a period of distribution declines to give the Double Bottom sell signal reversing a series of rising bottoms.wuniv?email=neowaver@hotmail. without a period of accumulation. Long Tail Down.149. The action point with this chart is the breakout. We are not going to split hairs over 20 boxes down. What we are looking for here is a trade. we like to see a stock that has declined 20 boxes or more with a reversal up..PnF University Bearish Signal Reversed. This pattern must have seven columns to qualify. Each column of X's must be lower than the one before and each column of O's must carry lower than the one prior to it. We wait for the breakout because until it is given supply is in control. We do not see this pattern very often but when we do its one of the best. In this pattern we will see the stock reverse up and quickly. Bullish Signal Reversed. This reverses the series of lower tops and often leads to a strong move to the upside.

If the stock falls 20 boxes and sits there for 3 months then we wouldn't look for much of a "Dead Cat Bounce". High Pole Warning Formation. In the example to the right the stock rises above the previous column of X's by four boxes making the move 7 boxes in total.PnF University an area of support and we want the reversal to occur fairly quickly.149.com&lesson=2&page=5 (3 of 4) [4/19/2001 9:13:21 PM] .61/cgi-bin/foxweb..exe/D:\foxa. It's a warning that supply might be taking control of the stock. Following the rise in X's.108. the stock must pull back at least 50 percent of that last up-thrust on the chart. This pattern is not actually a sell signal. The thought behind the formation is that there must be something wrong with the supply-demand relationship if the stock subsequently gave up 50 percent of the last move up.wuniv?email=neowaver@hotmail.. A greater than 50% retracement would be a pullback of 4 boxes or a move http://208. It occurs when a chart exceeds a previous column of X's by at least 3 boxes.

PnF University to 19.61/cgi-bin/foxweb.exe/D:\foxa..wuniv?email=neowaver@hotmail.108. Next http://208.149.com&lesson=2&page=5 (4 of 4) [4/19/2001 9:13:21 PM] ..

108. The PnF indicators are our main tools for assessing risk in the market place.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.PnF University Welcome: Lesson 4: Introduction Now we will talk about the market. How does one determine when risk is high or low? When do I lock in some profits? What are some strategies for managing risk? Can the market be timed? Is there a way to know? You will be able to assess the risk in the market and how best to take advantage or protect yourself accordingly. please check the "Questions" section to see if it has already been answered. If you have any questions. Next http://208. In this chapter all of the different indicators will be reviewed. Historical NYSE BP Chart Part 2: Bullish Percent Charts OTC Bullish Percent Optionable Bullish Percent 10 Week Moving Average High Low Index Dow Jones 20 Bond Average Test yourself at the end of the chapter to sharpen your skills.62/cgi-bin/foxweb. In this section we will list any upcoming live online classes specifically covering this chapter. In this section you will get answers to many investment questions. Message Board Lesson 4 Contents: Part 1: NYSE Bullish Percent Market Timing Attributes of a Bullish Percent Chart NYSE Bullish Percent Risk Levels.149. If it has not.com&lesson=4&page=1 [4/19/2001 9:14:19 PM] . then click on the question mark icon below to email us your question. It will be answered shortly (within two business days).

your returns were 473%.108.62/cgi-bin/foxweb.6 years? NYSE Bullish Percent: We use the Bullish Percent indices to assess risk in the market. If you missed the ten best days in the market from '90-'98.149. your returns would be 140% versus a buy and hold strategy of 248%. "In order to be a successful risk management investment strategy.6 years to spare? Do you not need your money for 7..com&lesson=4&page=2 (1 of 3) [4/19/2001 9:14:34 PM] . http://208.. sending children to college or retiring in the next 50 years. These studies assume you aren't buying a home. It does. You have heard for years that market timing can't be done. The buy and hold strategy is the best for long term investors.. There's more to it than just buy and hold as we will explain and you've probably come to realize on your own." Source: "Lasting Wealth is a Matter of Timing" by Sosnowy Do You Feel Lucky? The assumption of the often quoted Buy and Hold studies is that you won't need your money for 50 years or more. The market averages a return of about 12% a year and to try and do better is just a frugal attempt. Market timing's first and foremost priority is the preservation of capital.exe/D:\foxa. we looked at missing the 10 best and 10 worst days. Excluding those days your return was 261%! Market Timing Does Work. however. market timing does not have to be perfect. Since the best days and the worst days often happen near one another. Do you have 7. it took 7. Despite belief to the contrary. strive to get an investor's funds out of the market before a major bear market devastates the portfolio. The other half of that story is if you missed the ten worst days during that same period. A more important question is.PnF University Welcome: Lesson 4: Part 1. market timing does not target getting in and out of the market at the absolute bottoms or tops. Best Days vs Worst Days.6 years to get back to even. NYSE Bullish Percent Technical Indicators The Myth About Market Timing.wuniv?email=neowaver@hotmail. Consider the following argument put forward by the Buy and Hold proponents.. "Where are you getting on the investment train?" If you got on the train at the beginning of the 1973-1974 Bear Market.

PnF University

The concept began in the 1940's but it wasn't until 1955 that A.W. Cohen actually
created the NYSE Bullish Percent. We often refer to this indicator as our main
coach for NYSE stocks. It tells us whether to have the offensive or defensive team
on the field. X's mean offense and O's mean defense. This indicator tells you who
has the ball. Based on a University of Chicago study 80% of the risk in any stock is
based in the market and the sector. However, they found that most people spent
80% of their time on stock selection. The NYSE Bullish Percent provides the insight
needed in determining the risk in the market. The more you learn about this
indicator, the more confidence you will have in your day to day operations in the
market.
If the overall market is not supporting higher prices, very few stocks you own , if
any, will do well. In a football game, two sides operate on the field at any one time,
offense and defense. The same forces act in the marketplace. There are times
when the market is supporting higher prices. When the market is supporting higher
prices, we can say that you have possession of the ball. You have the offensive
team on the field. When you have the ball, your job is to take as much money away
from the market as possible; this is the time you must try to score. During times
when the market is not supporting higher prices, you have in essence lost the ball
and must put the defensive team on the field. During such periods, the job of the
market is to take as much money away from you as possible. Think for a moment
about your favorite football team. How would they do if they operated only with the
offensive team in every game? They might do well when they had possession of
the ball, but when the opposing team had the ball, your team would be scored on at
will. The net result is your season would be lackluster at best.
This is the problem most investors have: They don't know which team is on the
field, much less where the game is being played. The NYSE Bullish Percent clearly
signals when the environment is ripe for offense or defense.
The NYSE BP is simply a compilation of the percent of stocks that trade on the
NYSE on Point and Figure buy signals. If you simply thumbed through all the Point
and Figure chart patterns of the stocks on the NYSE and counted the ones that
were on buy signals, then divided by the total number of stocks evaluated, you
would have the NYSE Bullish Percent reading. DWA calculates all of this in their
database and displays the charts for you, however, it is important to know how they
are calculated.
Let's say for instance, there were 2,000 stocks on the NYSE and 1,000 of them
were on Point and Figure buy signals. The Bullish Percent would be at 50%
(1,000/2,000 = 50 percent). We use the same three-box reversal to shift columns in
this index as we do in the normal Point and Figure chart. Each box constitutes 2
percent, and the vertical axis runs from 0 to 100 percent. It will take a 6% change in
order to reverse this chart.
When the index is rising in a column of X's, more stocks are going on buy signals.
Changes in the index can only come from first signals that are given by a stock,
not subsequent signals. Let's say that XYZ stock bottoms out after declining and
then gives that first buy signal off the bottom. That signal turns the stock from
bearish to bullish. It is this first buy signal that is recorded. All subsequent buy
signals are not counted.
The Bullish Percent concept is unique from most market indicators because it is a
one stock - one vote indicator. The reason this is so important is that most peoples
portfolios are managed on an equal dollar weighted basis, much like a one stock one vote. Therefore, the Bullish Percent index is a better indicator to manage risk
than a capitalization weighted index like the S&P 500. In other words, you are

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getting an apples to apples comparison.
Next

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PnF University

Welcome:
Lesson 4:

Part 1. Continued

Attributes of a Bullish Percent Chart:
These are the same as with any PnF chart. The letters or numbers in the columns
denote the months of the year. Time spent in a column of X's or O's is generally a
number of months, not weeks. There are no bullish or bearish resistance lines but
there are risk levels which we will go over in a moment.
It is important to know how this index works so let's go over how the index rises
and falls.
Example:
Let's say there are 100 stocks trading on the NYSE. Over the next week 12 stocks
experience a new buy signal and 10 stocks experience new sell signals. The net
result of the action for the week is two new buy signals or 2 percent more stocks
are on buy signals. Remember that each box on the chart represents 2 percent, so
a 2 percent net change in new buy signals allows the chart to rise one box.
The only way to switch from one column to the next is through a three-box
reversal. It would take a sum total of 6 percent net buy or sell signals to cause a
reversal. Remember the box sizes, in this case the box size is 2 percent and
therefore a three box is 6 percent, in either direction.
Reversing from one column to the next is tantamount to losing or gaining
possession of the ball.
We use the football analogy here a lot because it helps visualize how the NYSE
BP works. The "playing field" runs from 0 to 100 percent, kind of like a 100 yard
football field. Where you are on that field determines your "field" position. The
column you are in tells you if you have the footbal and the field position tells you
how much room you have to run.

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com&lesson=4&page=3 (2 of 3) [4/19/2001 9:14:53 PM] . The lower it drops. When you have possession.exe/D:\foxa..PnF University There are two things we try to ascertain with this chart: 1 .108..wuniv?email=neowaver@hotmail. we say you have possession of the football.Who has the ball? 2 . the more oversold it gets. the stock http://208.149. you must run offense plays. This is your time to attempt to score against your opponent. the more overbought it becomes. When the index is rising in a column of X's.What is the field position? The higher the index climbs.67/cgi-bin/foxweb.

Thinking about this concept in terms of supply and demand. below 30% and in a column of X'syou have a lot of room to run the ball. When the index is declining in a column of O's.wuniv?email=neowaver@hotmail.PnF University market.. we say the market has the ball and your job is to try to keep it from scoring against you.108. When you are in the Green Zone. the availability of demand to continue to push the market higher is severely limited.149. Next http://208. When you are in the Red Zone and in a column of O's you have a lot of territory to lose the ball. When the NYSE BP goes near/above the 70% level. when the NYSE Bullish Percent goes near/below 30% the availability of supply to continue to push the market lower is severely limited. If you colored the chart above the 70 percent level red and the area below 30 percent level green. It isn't often the index moves below 30% or above 70%.com&lesson=4&page=3 (3 of 3) [4/19/2001 9:14:53 PM] .67/cgi-bin/foxweb. these would represent the two extremes much like the end zones of a football field.exe/D:\foxa..

http://208.exe/D:\foxa. 1) Bull Confirmed Market: This risk level occurs when the Bullish Percent gives a buy signal by exceeding a previous column of X's. These risk levels are similar to the different signals a traffic light can give.Bear Alert 6 .. It is equally important to evaluate the relative field position of the index.PnF University Welcome: Lesson 4: Part 1.Bear Correction. 1 . Bull Confirmed at 70 percent means much more risk than Bull Confirmed at 30 percent. Continued NYSE Bullish Percent Risk Levels.Bull Alert 3 ..com&lesson=4&page=4 (1 of 4) [4/19/2001 9:15:23 PM] .108.65/cgi-bin/foxweb. Bull Confirmed at the 70 percent level is very different from Bull Confirmed at the 30 percent level. There are six degrees of risk in bullish percent charts.Bull Confirmed 2 . While we pay the most attention to whether the bullish percent index is in X's or O's and the field position. to become a real craftsman at this methodology you need to be aware of the six different risk levels.149.wuniv?email=neowaver@hotmail.Bear Confirmed 5 .Bull Correction 4 .

.com&lesson=4&page=4 (2 of 4) [4/19/2001 9:15:23 PM] . The next reversal back up into a column of X's reverts the risk level back to Bull Confirmed...exe/D:\foxa. Then. First.wuniv?email=neowaver@hotmail. The bull trend is likely to resume shortly.. This index does not have to exceed the 30 percent level. A change to this risk level is tantamount to a red light changing to green.149.PnF University Examples of Bull Alert: 2) Bull Alert Market This market occurs when the Bullish Percent reverses up into a column of X's from below 30 percent. At the 30 percent or lower level.. simply reverse up. many stocks are making their lows. and the market is currently digesting its excesses. http://208.. It is characterized by a 6 percent reversal down from a Bull Confirmed status that takes place below the 70 percent level. Examples are below. The actual reversal to the upside suggests most lows have been made and the probability is up from there. 3) Bull Correction Market The bull market is getting a little extended at these levels.108.65/cgi-bin/foxweb.

PnF University 4) Bear Confirmed Market: This market is characterized by the Bullish Percent Index penetrating a previous bottom. An example is to the right.exe/D:\foxa. watch closely for the first three box reversal back up to X's. defensive action should be taken. http://208. Bear Confirmed at 30% is not as dangerous as Bear Confirmed at 70 percent..108. field position is important to consider in this risk level. Short positions can also be initiated in technically weak stocks.com&lesson=4&page=4 (3 of 4) [4/19/2001 9:15:23 PM] . This indicates a respite in the selling pressure. See example to the right. 6) Bear Correction Market. Always keep the field position in mind.149. In the Bear Alert market. The traffic light is red in this risk level. 5) Bear Alert Market When the Bullish Percent drops below 70 percent without penetrating a previous bottom Bear Alert status occurs. Typically a reversal to Bear Alert will bring this NYSE BP down to at least the 50% level. If the Bear Confirmed happens near 30%.wuniv?email=neowaver@hotmail. This phase is characterized by a 6 percent reversal into a column of X's from a Bear Confirmed status above the 30 percent level. If Bear Confirmed comes near 70% you should employ defensive strategies. Again. Bull Confirmed Bull Alert Bull Correction Bear Confirmed Bear Alert Bear Correction.65/cgi-bin/foxweb..

PnF University Next http://208.wuniv?email=neowaver@hotmail..65/cgi-bin/foxweb..com&lesson=4&page=4 (4 of 4) [4/19/2001 9:15:23 PM] .108.149.exe/D:\foxa.

149..PnF University Welcome: Lesson 4: Part 1.exe/D:\foxa.wuniv?email=neowaver@hotmail. Continued Risk Levels labeled in the NYSE Bullish Percent. http://208..108.67/cgi-bin/foxweb.com&lesson=4&page=5 (1 of 2) [4/19/2001 9:15:59 PM] .

wuniv?email=neowaver@hotmail. Offense: Buy Stock Buy Calls Increase invested position. Here are just some of the different ways one can play offense (wealth accumulation) and defense (wealth preservation).com&lesson=4&page=5 (2 of 2) [4/19/2001 9:15:59 PM] .108.67/cgi-bin/foxweb. Sell calls against positions Take partial positions off the table Increase cash position Move to more defensive issues Buy protective puts Short positions can be initiated Next http://208.149.exe/D:\foxa...PnF University Link to a historical Point and Figure Chart (database format) We've talked a lot about using the NYSE Bullish Percent as a way to assess risk in the market. Defense: Come off margin Sell partial positions Tighten up stop loss points.

108. Conversely.wuniv?email=neowaver@hotmail. The chart is read the same way as the NYSE Bullish Percent Index. The more you follow.com&lesson=4&page=7 (1 of 2) [4/19/2001 9:16:30 PM] . the more confused you will become. Bullish Percent Charts OTC Bullish Percent Many investors Chart of the OTC Bullish Percent with risk levels: make the mistake of trying to follow too many indicators... the OTC market has the ball. when it is in a column of O's. The same two http://208. DWA also follows an OTC Bullish Percent Index because of the plethora of high-tech.64/cgi-bin/foxweb. When the index is rising in a column of X's.PnF University Welcome: Lesson 4: Part 2. Our most important concept is the Bullish Percent discussed in the first part of this Lesson.149. The OTC Bullish Percent Index is a compilation of the percentage of over-the-counter stocks that are on Point and Figure buy signals. over-the-counter stocks we deal with each day. you have the football.exe/D:\foxa.

Important Note: You can see here with the above chart that it isn't often the Index reaches below the 30% level except in extreme market conditions. that this is an art. The risk levels are defined the same for the OTC BP as with the NYSE BP and their meaning is identical. as with all of PnF charts. The same six risk levels apply and the overbought level begins at 70% (Red Zone) and the oversold level begins at 30% (Green Zone).149.108. Point and Figure is a combination of charts and so far we have been teaching you the principles of the individual charts and we will start to move into how to put them all together.PnF University lines of demarcation exist at the 70% and 30% level. There are more than 3000 stocks in this index..64/cgi-bin/foxweb. Optionable Bullish Percent The Optionable Bullish Percent is a shorter to intermediate term indicator comprised of bigger name/cap stocks in the NYSE and OTC that have options listed against them.exe/D:\foxa. It works just like the NYSE BP and often changes in the Optionable Bullish Percent will be followed by a change in the NYSE Bullish Percent. It is more often that it bases around the higher 30's or lower 40's. not a science. Most often the OTC Bullish Percent tops out in the 60's. When learning the risk levels you must understand. Next http://208.com&lesson=4&page=7 (2 of 2) [4/19/2001 9:16:30 PM] . This is also true near the 70% level. That is to say if the "OPTI" turns negative we watch the NYSE BP closely to see if it is to turn negative and vice versa.wuniv?email=neowaver@hotmail..

108. We also have a 10 Week for the OTC. Buy signals can also occur when a column of X's exceeds a previous column of X's. the OTC or the Optionable BP because it is a short term indicator. One of our main short term indicators. As the name implies.exe/D:\foxa.. this is simply the percent of stocks on the NYSE that are above their ten week moving averages.com&lesson=4&page=8 (1 of 4) [4/19/2001 9:17:01 PM] . The 10 Week moves a lot quicker than the NYSE BP.wuniv?email=neowaver@hotmail. Sell signals occur when the index goes above 70% and then reverses down below 70% or when a column of O's exceeds a previous column of O's.149.PnF University Welcome: Lesson 4: Part 2. Being aware of the short term picture is important because often it will spill over into the long term picture.64/cgi-bin/foxweb. This index is of great benefit when you are planning your trade.. We use this short term indicator with the High-Low index and we like to see them moving in concert with one another. Buy signals occur when a column of O's fall at or below 30% and then reverse to a column of X's. Investors should never us the 10 Week Moving Average Index as their sole indicator in determining whether to make new http://208. Continued 10 Week Moving Average Also known as the Percent of 10.

Reversals from above 70 percent http://208.PnF University stock commitments.. High Low Index One of the short term indicators.wuniv?email=neowaver@hotmail..149. we use this in conjunction with the Percent of 10. an investor would be fully invested. This index is calculated by taking the number of new highs and dividing by the number of new highs plus new lows. If the main trend in the market is up as dictated by the NYSE BP and the 10 Week is on a buy signal. The chart is set just like a bullish percent chart going from 0 to 100%. or a column of X's exceeds a previous column of X's. Buy signals come when the index falls to or below 30% and then reverses up.64/cgi-bin/foxweb.108. The two critical levels are 30 and 70%.exe/D:\foxa. Sell signals come when the index goes above 70% and then reverses down below 70% or a column of O's exceeds a previous column of O's. We keep this calculation on a ten day moving average and then plot it on a point and figure chart. In the latter case. However.com&lesson=4&page=8 (2 of 4) [4/19/2001 9:17:01 PM] . Buy and sell signals can also come by exceeding a previous top or bottom respectively. traders can effectively use it as a market timing indicator for short term trades. Sell signals come from reversals above to below 70%. then you are in a market that is bull configured both short and long term. We will continue with how to put this together with other indexes in a later lesson.

108.PnF University suggest that there is a trend change from more stocks making new highs to more stocks making new lows.7% Dow Reading 800. Date Mar 1980 Sep 1981 Jun 1982 Feb 1984 May 1984 Jul 1984 Oct 1987 Jan 1990 May 1990 Moved Below 10% 3-6-80 8-31-81 6-7-82 2-17-84 2-17-84 7-18-84 10-20-87 1-31-90 5-2-90 Dow Reading 828..54 2689.64 Upside Reversal 4-10-80 10-7-81 6-24-82 2-28-84 6-11-84 8-2-84 1-4-88 2-7-90 5-7-90 Dow Reading 791.3% 5.64 1841.62 http://208. The percent of 10 and the High Low typically go in tandem but not always.03 1148.33 2590.9% 2.41 1157.61 1166.01 2590.09 2721.0% 5..24 1111. As you can see.94 849. Nothing is ever exact in the markets. These two indicators are our main short term guides. More on the NYSE High Low Index (Excerpt from 10/01/99 Daily Equity Report) Below is a table showing times when the NYSE High Low Index hit 10% and the subsequent reversal up.87 1101.72 810.exe/D:\foxa.5% 0.5% 5.98 795.46 804.wuniv?email=neowaver@hotmail. Sometimes one lags the other.9% 9.5% 7. reversals up from below the 10% level have been very good signs to re-enter the market with new positions.64/cgi-bin/foxweb.25 2640.95 1938.57 1134.35 1096.08 2015.com&lesson=4&page=8 (3 of 4) [4/19/2001 9:17:01 PM] .149.7% 8.21 1124.14 1115.54 2689.47 868.64 Low Reading 0.07 881.

4% 4.07 3.PnF University Aug 1990 Nov 1994 Aug 1998 8-15-90 11-23-94 8-31-98 2748.27 3674.2% 2613.149.54 9-18-90 12-21-94 9-23-98 2571.108..29 7615.29 3801.wuniv?email=neowaver@hotmail.4% 5..80 8154.com&lesson=4&page=8 (4 of 4) [4/19/2001 9:17:01 PM] .exe/D:\foxa.37 3746.63 7539.41 Next http://208.64/cgi-bin/foxweb.

This is considered a buy signal.108. The closing price of the Dow Jones 20 Bond Average is simply plotted on a Point and Figure chart. We reported in our Daily Equity Market Report to lock in interest rates on adjustable mortgages. the Dow Jones 20 Bond Average gave a sell signal at high levels which suggested higher interest rates to come. but when they occur. Moves on this chart are typically long term and we look at buy and sell signals as well as high pole and low pole warnings.com&lesson=4&page=9 (1 of 3) [4/19/2001 9:18:14 PM] . The high pole warning occurs when the chart exceeds the previous top by at least three X's and then pulls back retracing more that 50% of the upmove. This in both cases this indicator was dead on the money. The box size is .. A low pole warning occurs when the chart exceeds the previous bottom by at least three O's and then reverses back to the upside and retraces the previous down move by greater than 50%.62/cgi-bin/foxweb. you must pay close attention.20 per box. The rules for a High Pole and Low Pole warning apply here.wuniv?email=neowaver@hotmail. Continued Dow Jones 20 Bond Average: This is our primary bond indicator. In October 1993 and in February of 1999. The Dow Jones 20 Bond Average is comprised of 10 industrial and 10 public utility bonds traded on the New York Exchange. http://208. This is a sell signal.. The average moves slowly and does not often give signals.PnF University Welcome: Lesson 4: Part 2.149.exe/D:\foxa.

149..com&lesson=4&page=9 (2 of 3) [4/19/2001 9:18:14 PM] .exe/D:\foxa.108.wuniv?email=neowaver@hotmail.62/cgi-bin/foxweb.PnF University Buy and Sell Signals for the Dow Jones 20 Bond Average: http://208..

0 +0.6 106.4 +3.0 102.8 103.6 Change: March 2000 June 2000 Sell Signal Buy Signal 95.6 Change: June 1997: February 1999 Buy Signal Sell Signal 102.6 102.0 96.6 Change: October 1993: January 1995: Sell Signal Buy Signal 105.8 Change: July 1995: September 1995: Sell Signal Buy Signal 102.com&lesson=4&page=9 (3 of 3) [4/19/2001 9:18:14 PM] .4 +11.2 +0.6 Change: January 1995 July 1995: Buy Signal Sell Signal 94.0 Change: September 1995: March 1996: Buy Signal Sell Signal 103.6 94.6 94.0 Next http://208.4 Change: February 2000 March 2000 Buy Signal Sell Signal 96.0 103..0 Change: January 1997: June 1997: Sell Signal Buy Signal 103.wuniv?email=neowaver@hotmail.149.8 +1.108.0 Change: August 1996: January 1997: Buy Signal Sell Signal 102.2 105.exe/D:\foxa..0 + 1.0 +8.PnF University May 1992: October 1993: Buy Signal Sell Signal 99.62/cgi-bin/foxweb.0 103.4 95.5 +9.8.8 +1.6 Change: +6.8 Change: March 1996: August 1996: Sell Signal Buy Signal 103.6 -.8 102.0 Change: February 1999: February 2000 Sell Signal Buy Signal 106.2 -0.

the NYSE BP. They look ahead and are the first thing we consider when investing. the Optionable BP.com&lesson=4&page=10 [4/19/2001 9:18:38 PM] .PnF University Welcome: Lesson 4: Wrap Up In this chapter you have been introduced with all of the main indicators. Percent of 10.108. Lesson 4 Contents: Part 1: NYSE Bullish Percent Market Timing Attributes of a Bullish Percent Chart NYSE Bullish Percent Risk Levels.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. In a later chapter you will see how all of these work together to determine long term and short term risk and how to position yourself in these different types of markets. High Low Index and the Dow Jones 20 Bond average. Next http://208. whether to cover or initiate new positions. The NYSE BP and OTC BP are our Main Coachs.67/cgi-bin/foxweb.149. our guide to whether we are offensive or defensive in the market. Historical NYSE BP Chart Part 2: Bullish Percent Charts OTC Bullish Percent Optionable Bullish Percent 10 Week Moving Average High Low Index Dow Jones 20 Bond Average We will now test you to find your comprehension of the subjects discussed in Lesson 4. the OTC BP. The short term indicators determine our trade positioning.

Do you have 7. Excluding those days your return was 261%! Market Timing Does Work. The other half of that story is if you missed the ten worst days during that same period. your returns were 473%. market timing does not target getting in and out of the market at the absolute bottoms or tops.108.wuniv?email=neowaver@hotmail.6 years to get back to even. "Where are you getting on the investment train?" If you got on the train at the beginning of the 1973-1974 Bear Market. If you missed the ten best days in the market from '90-'98. Since the best days and the worst days often happen near one another. Best Days vs Worst Days. You have heard for years that market timing can't be done." Source: "Lasting Wealth is a Matter of Timing" by Sosnowy Do You Feel Lucky? The assumption of the often quoted Buy and Hold studies is that you won't need your money for 50 years or more. There's more to it than just buy and hold as we will explain and you've probably come to realize on your own. strive to get an investor's funds out of the market before a major bear market devastates the portfolio. Market timing's first and foremost priority is the preservation of capital. These studies assume you aren't buying a home. sending children to college or retiring in the next 50 years. http://208. "In order to be a successful risk management investment strategy.149. The market averages a return of about 12% a year and to try and do better is just a frugal attempt. Despite belief to the contrary. NYSE Bullish Percent Technical Indicators The Myth About Market Timing. we looked at missing the 10 best and 10 worst days. however..PnF University Welcome: Lesson 4: Part 1. Consider the following argument put forward by the Buy and Hold proponents. market timing does not have to be perfect.exe/D:\foxap.6 years to spare? Do you not need your money for 7. The buy and hold strategy is the best for long term investors....com&lesson=4&page=2 (1 of 3) [4/19/2001 9:19:29 PM] . your returns would be 140% versus a buy and hold strategy of 248%. A more important question is. It does.6/cgi-bin/foxweb. it took 7.6 years? NYSE Bullish Percent: We use the Bullish Percent indices to assess risk in the market.

Let's say for instance. Think for a moment about your favorite football team. Therefore. The more you learn about this indicator. it is important to know how they are calculated. we can say that you have possession of the ball. Each box constitutes 2 percent. you would have the NYSE Bullish Percent reading. In other words. When the market is supporting higher prices. In a football game. however. they found that most people spent 80% of their time on stock selection.000 stocks on the NYSE and 1. much less where the game is being played. The NYSE Bullish Percent provides the insight needed in determining the risk in the market. X's mean offense and O's mean defense. When the index is rising in a column of X's. your team would be scored on at will. the job of the market is to take as much money away from you as possible. This indicator tells you who has the ball. The Bullish Percent would be at 50% (1.com&lesson=4&page=2 (2 of 3) [4/19/2001 9:19:29 PM] . the more confidence you will have in your day to day operations in the market. The Bullish Percent concept is unique from most market indicators because it is a one stock . The reason this is so important is that most peoples portfolios are managed on an equal dollar weighted basis. Changes in the index can only come from first signals that are given by a stock. When you have the ball. During such periods.. much like a one stock one vote.exe/D:\foxap. During times when the market is not supporting higher prices. then divided by the total number of stocks evaluated. It is this first buy signal that is recorded.149. you are http://208. Cohen actually created the NYSE Bullish Percent.. DWA calculates all of this in their database and displays the charts for you. If the overall market is not supporting higher prices. if any. The NYSE Bullish Percent clearly signals when the environment is ripe for offense or defense. The same forces act in the marketplace.000 of them were on Point and Figure buy signals. your job is to take as much money away from the market as possible. there were 2. That signal turns the stock from bearish to bullish. you have in essence lost the ball and must put the defensive team on the field. If you simply thumbed through all the Point and Figure chart patterns of the stocks on the NYSE and counted the ones that were on buy signals.one vote indicator. It will take a 6% change in order to reverse this chart.000 = 50 percent). very few stocks you own . How would they do if they operated only with the offensive team in every game? They might do well when they had possession of the ball. Based on a University of Chicago study 80% of the risk in any stock is based in the market and the sector.000/2. will do well. but when the opposing team had the ball. more stocks are going on buy signals. We often refer to this indicator as our main coach for NYSE stocks. the Bullish Percent index is a better indicator to manage risk than a capitalization weighted index like the S&P 500. It tells us whether to have the offensive or defensive team on the field. and the vertical axis runs from 0 to 100 percent. There are times when the market is supporting higher prices. This is the problem most investors have: They don't know which team is on the field. The net result is your season would be lackluster at best.6/cgi-bin/foxweb. this is the time you must try to score.108. All subsequent buy signals are not counted. Let's say that XYZ stock bottoms out after declining and then gives that first buy signal off the bottom.PnF University The concept began in the 1940's but it wasn't until 1955 that A. We use the same three-box reversal to shift columns in this index as we do in the normal Point and Figure chart. You have the offensive team on the field. The NYSE BP is simply a compilation of the percent of stocks that trade on the NYSE on Point and Figure buy signals. However.wuniv?email=neowaver@hotmail. two sides operate on the field at any one time. not subsequent signals.W. offense and defense.

.exe/D:\foxap.6/cgi-bin/foxweb.108..149.com&lesson=4&page=2 (3 of 3) [4/19/2001 9:19:29 PM] .PnF University getting an apples to apples comparison.wuniv?email=neowaver@hotmail. Next http://208.

108. As with the market.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.com&lesson=5&page=1 [4/19/2001 9:20:47 PM] . If it has not.67/cgi-bin/foxweb. It will be answered shortly (within two business days). Next http://208. In this section we will list any upcoming live online classes specifically covering this chapter. how to evaluate them and how they are performing compared to the market. Sector Bell Curves Examples Sector Relative Strength Intel Example Sector (Index) RS Chart DWA Sector Index RS Charts Test yourself at the end of the chapter to sharpen your skills.PnF University Welcome: Lesson 5: Introduction We've covered the overall market with the Bullish Percents and now we look at the individual sectors that are comprised of the securities. Message Board Lesson 5 Contents: Part 1: Sector Bullish Percents. Here we discuss how the sectors operate. it is important to understand all of the risk under which a particular stock is operating. If you have any questions.149. Part 2: Sector Relative Strength Perfect Market Timing vs Perfect Sector Timing DWA Individual Sectors. then click on the question mark icon below to email us your question. please check the "Questions" section to see if it has already been answered.

html [4/19/2001 9:21:12 PM] .149.108.mail=neowaver@hotmail.61/cgi-bin/foxweb..exe/D:\foxapps\f..PnF University http://208.com&lesson=4&doc=exercises.

you should report it..html'" is invalid. we can't find the problem. Error message: User program "File 'questions. Please wait a few minutes and try again.html' does not exist.108. non-existent or has not been compiled Line of code with error: Line number of error: 0 Program with error: Server: Browser: Logon: FoxWeb 61 4.149.html'" is invalid.html [4/19/2001 9:21:16 PM] . We are probably aware of it..Error! FoxWeb Foundation Program Dang! You have received an error! Here is what happened: Error: File 'questions. If you get the error again.61/cgi-bin/foxweb. DWA Support or call (804) 320-8511 Database error an emergency DWA Support (Page Administrator) http://208.exe/questions.0. There is a problem with the database. please use Copy/Paste to put this information into your email.MSIE 5.01 PROSENSTEIN Important! If you are sending email. More information about the error: Error message: User program "File 'questions. non-existent or has not been compiled Code with error: Lineno: 0 Program: FoxWeb User: Pauline Rosenstein dbf: recno: 0 What were you doing (be Very specific): Email addresses to report a. If we don't have this info.

com&lesson=2&doc=questions.149.exe/D:\foxapps\f.mail=neowaver@hotmail.108..html [4/19/2001 9:21:48 PM] .62/cgi-bin/foxweb.PnF University http://208..

Perfect Market Timing vs Perfect Sector Timing. The reason for this is the same way. The forces of supply financial periodicals catch wind of a and demand begin to change. the sector moves in the forecasted sector is in play. direction. write articles about how the industry has made a turnaround and should have You must remember. Jones and Ms. Probably 80 percent of the risk in a stock is the market and sector. and the major move underway and begin to sector takes the opposite track..Sector Bullish Percents. moving in unison first in one and you will find its behavior is the direction and then another.PnF University Welcome: Lesson 5: Part 1 . Stock prices do not move without rhyme or reason. First one analyst raises Smith into action and while all the Jones the earnings expectation. Sector analysis is one of the most important yet least analyzed parts of the market. Sector Timing: Bought the best performing sector at the beginning of the year. there As the sector moves up. plains. the follow and before you know it. but the exact opposite of that suggested on the majority go together.108. Watch magazine covers carefully. Buy & Hold: Bought the S&P 500 and held through the good times and the bad times.exe/D:\foxap. the trend in that sector will continue to move for a couple A good analogy would be the picture of of months in the direction the cover wildebeest romping across the African describes. If you find one.149.com&lesson=5&page=2 (1 of 3) [4/19/2001 9:22:48 PM] . The next time you are in the airport look at the magazine rack and see if you can find a widely read magazine that makes a major statement on its cover about some sector of the market . Once these investors are in and the door slams behind them. This draws in the stock market you must look investors in just in time to catch the top.6/cgi-bin/foxweb. buy the magazine and keep it. to be successful clear sailing ahead. Eventually the mainstream sponsor the sector. Wall Street tends to that the cover stirs Mr. follow the herd. Sectors operate magazine cover. We place tremendous emphasis on sector rotation in our daily work. other is no more buying or selling pressure institutions see the move and climb on (whichever the cover suggests) left to board.something like "The Banking Industry Is Dead".wuniv?email=neowaver@hotmail. Normally. These moves tend to be orchestrated. http://208. Market Took money out of the S&P before there was a down month and put Timing: it back in just before a positive month. Give that sector 8 months.. then the rest and Smiths are busy reacting.

Sector rotation is one of the most important parts of our daily operation. almost everyone is in that wants to be in. go the opposite direction.108. You must find the courage to buy stocks in sectors that are our of favor. Again this is the "art" of the methodology. Understanding this.wuniv?email=neowaver@hotmail. helps you to better evaluate the risk in a http://208. it is important that you take the time to look at them.. The same 30% and 70% levels apply to sectors as well as the six different risk levels. If there are no more buyers left to cast their vote.6/cgi-bin/foxweb. Remember that prices move as a direct result of supply-and-demand imbalances. however. and the whole process begins again only in reverse this time. supply by definition must take the upper hand. Here are the sectors currently covered at DWA: This list is pulled from the DWA database. The same principles used with the market bullish percent charts applies to the Sector Bullish percents. knowing where a sector typically tops or bottoms. By evaluating each of these charts you will learn the nuances of each sector. each sector bullish percent should have at least 100 stocks in it. who use newspapers and magazines as their primary source of stock market research. Ideally. The last group is the unsuspecting public. The sector then begins to lose Sponsorship. When evaluating sectors you must be a contrarian. Individual sectors. You will also notice that some sectors tend to move to greater extremes than the NYSE Bullish Percent. Some like the internet have wild swings to chart extremes while others like the drug sector seem to move in a more confined area. ahead: What is happening in the market today has already been discounted many months ago.149.PnF University By the time the articles appear in magazines about how great the industry is.exe/D:\foxap.com&lesson=5&page=2 (2 of 3) [4/19/2001 9:22:48 PM] . Forest Prods/Paper Aerospace Airline Gaming Asia Pacific Healthcare Autos & Parts Household Goods Banks Insurance Biomedics/Genetics Internet Building Latin America Business Products Leisure Chemicals Machinery and Tools Computers Metals Non Ferrous Drugs Oil Electronics Oil Service Europe Precious Metals Finance Foods Beverages/Soap Protection Safety Eq Real Estate Restaurants Retailing Savings & Loans Semiconductors Software Steel/Iron Telephone Textiles / Apparel Transports / Non Air Bull Alert Utilities / Electri Utilities / Gas Wall Street Waste Management We will not review each sector bullish percent chart one by one. You must avoid the crowd. We follow 43 sector Bullish Percent Charts.. This is extremely difficult as it goes against human nature.

149.108.6/cgi-bin/foxweb.PnF University particular sector..com&lesson=5&page=2 (3 of 3) [4/19/2001 9:22:48 PM] .wuniv?email=neowaver@hotmail. Next http://208.exe/D:\foxap..

wuniv?email=neowaver@hotmail.108. Dow Industrials in the 2350 area and making all-time highs http://208..PnF University Welcome: Lesson 5: Part 1 ..149. Below are some "time shots" of these curves.Continued Sector Bell Curves: The tables below are used to help us depict the overbought or oversold nature of the sector bullish percent charts. If a sector is on the far right side it is overbought and if it is on the far left side it is oversold.61/cgi-bin/foxweb. The horizontal scale runs from less than 10%(oversold) to greater than 90% (overbought).exe/D:\foxa.com&lesson=5&page=3 (1 of 2) [4/19/2001 9:23:44 PM] . We simply place the sector symbol above the point on the horizontal scale which correlates to its bullish percent chart.

61/cgi-bin/foxweb.com&lesson=5&page=3 (2 of 2) [4/19/2001 9:23:44 PM] . DWA created this method to easily show which sectors are moving up or down.PnF University It is when the Bell curve is skewed to the right that everyone who wants to be in the market is in and there isn't much opportunity left. DWA posts the Sector Bell curve in the "From the Analyst" section when there are important changes or updates.wuniv?email=neowaver@hotmail.. are in X's or O's. For the individual investors.exe/D:\foxa. You can look up the sector Bell Curve if you have the professional subscription at DWA under the "Reports and Sector Area" link. The charts above show all the sectors in Uppercase letters. This is when things look the best but really it is when caution is warranted.149. Uppercase for those sectors moving up and Lowercase for sectors moving down (not shown in the Bell curves above).108.. Next http://208.

This particular sector covers the whole field.wuniv?email=neowaver@hotmail.. This action is not typical of the sector bullish percents. Note: With respect to the Bell Curve.exe/D:\foxa..Continued Let's look at a few charts to give the example. http://208. below the 30% level and in lower case (because the sector chart is in O's).PnF University Welcome: Lesson 5: Part 1 . this sector would be listed on the left hand side.149. Or at least the ones you are interested in.com&lesson=5&page=4 (1 of 3) [4/19/2001 9:24:22 PM] .69/cgi-bin/foxweb. Internet Sector (BPINET) Notice the large swings in this sector from above 80% to below 20%. This is why it is imparative that you evaluate and "get a feel" for each of these charts.108.

Therefore. Only in the years '91 and '92 did it move above 70% (not pictured). You will see the Uppercase and Lowercase letters in this example.. the market has taken a major slide and the Sector Bell Curve has been effected.. At this writing. at 50%. we consider the "over bought" area for this particular sector to be in the 60's and the low 30's would be considered the "over sold" area. Note: With respect to the Bell Curve. We look for sectors to reverse up from these low levels and to find opportunity in stocks that are housed in those sectors. this chart would be in the middle of the curve.69/cgi-bin/foxweb.149. http://208.wuniv?email=neowaver@hotmail.108. which proved to be a great entry.PnF University Drug Sector (BPDRUG) Notice this sector typically moves between the high 30's and mid 60's. Most of the sectors are below the 50% area telling us that the market is now over sold. and in Uppercase letters because the chart is in X's. It has in its history moved below 30%. Take time to look at the different sectors to see where they top and bottom out and where opportunity lies.exe/D:\foxa.com&lesson=5&page=4 (2 of 3) [4/19/2001 9:24:22 PM] .

69/cgi-bin/foxweb.149.108.PnF University Next http://208..wuniv?email=neowaver@hotmail..com&lesson=5&page=4 (3 of 3) [4/19/2001 9:24:22 PM] .exe/D:\foxa.

Many of you are very aware of its definition and importance pertaining to stock selection.PnF University Welcome: Lesson 5: Part 2 . During times of market uncertainty.com&lesson=5&page=5 (1 of 2) [4/19/2001 9:24:53 PM] . The Relative Strength calculation is simply done (using Tuesday evening closing data that is available automatically through DWA) by dividing the price of the sector by the price of the S&P 500 (SPX). But of equal importance for Sector RS is what the most recent column is on the RS chart.Sector Relative Strength Sector Relative Strength is a great tool to use when trying to determine which sectors are outperforming the market. This number is then plotted on a point and figure chart.wuniv?email=neowaver@hotmail. it is extremely important to determine its relative strength. Sector Relative Strength measures how a particular sector is doing compared to the market in general.. we consider that a "Buy" signal. Given the fact that the Sector is one of the greatest contributors to price fluctuation in a stock.. If long stocks in these sectors it is time to evaluate them and http://208.108.exe/D:\foxa. buy signals are given when a column of X's exceeds a previous column of X's. A reversal down on the sector RS chart is considered a negative and this would not be a sector to consider intiating positions in.149. Relative Strength is a term we use extensively and place great importance. Don't forget that there are other factors to consider such as risk in the general market and the chart of the individual stock. are showing that they are "out performing" the market. It is at these times that you should be paying close attention to those sectors which are exhibiting strong relative strength . it is a sign that you should be considering it to initiate positions. Those sectors exhibiting positive relative strength (ones in a column of X's on their RS chart) are the ones to focus on.that is. but sector relative strength is a vital component when determining which sectors are likely to perform the best. As with any PnF chart and as you have seen in the previous lesson on stock relative strength. When a reversal up occurs.67/cgi-bin/foxweb. Sector RS takes on a particularly significant role. and then multiplying by 100. When a sector index reverses up into a column of X's on its RS chart. Sell signals are given when a column of O's exceeds a previous column of O's.

com&lesson=5&page=5 (2 of 2) [4/19/2001 9:24:53 PM] .wuniv?email=neowaver@hotmail. it is extremely important to determine the relative strength. Then we highlight the different tools available to you on the DWA Internet site that can help identify a sector's relative strength compared to the overall market. But just as important as our development. The Nuances of Navigating this market. and therefore advise you accordingly. We also wanted to alert you to all the different tools we have developed to help determine which are the best sectors on a relative strength basis.67/cgi-bin/foxweb. Sector Relative Strength is a great tool to use when trying to determine which sectors are outperforming the market.149. and are continuously striving to develop new tools to help us navigate the market..PnF University make sure that appropriate stop loss points are in place. Next http://208.. At DWA we constantly strive to present you with quality advice and research. This is where education comes into play. We are always working to become better at using our time-tested market and sector indicators. Below we discuss the basic concepts of sector relative strength and how it is calculated.exe/D:\foxa. Given the fact that the Sector is one of the greatest contributor to price fluctuation in a stock. is your development with using the tools we give you. Using the sector RS.108. Those sectors exhibiting positive relative strength (ones in a column of X's on their RS chart) are the ones to focus on.

http://208.63/cgi-bin/foxweb. It will help keep you in at least partial positions of stocks that reside in strong RS sectors. keeping some exposure in the group due to the strong RS reading of the sector. On all measurements. Now let's go over some of the other tools that are at your disposal that can help you try to get a handle on sector relative strength.they are the ones which are outperforming the market. On this same page will be a list of our DWA Equal Weighted Sector Index Relative Strength readings. You can access this data on the DWA site by clicking on the "Indices" link in the bottom-left quadrant. This tool is extremely important to use when the sector bullish percent may be close to a reversal down.Continued The sectors which we follow RS readings for are listed below. or the underlying strength of the stocks which make up a given sector. SPX". There are two other forms of charts we keep that can give you insight into sector relative strength.PnF University Welcome: Lesson 5: Part 2 . to give you a broader view of how a sector is performing on a relative strength basis. such as the Media group. you would have been better off to only trim the position. Again when using these RS charts. Then click on the "Sector" link at the top of the page and this will bring up the list of sectors and will show a column that says "RS vs. but the relative strength for the sector has not waned at all. The RS charts for the cap-weighted SOX and the DWA Semiconductor index will more often than not tell the same story. Let's use Intel (INTC) as an example.108. and we think the best measurement for this is RS. remember the concept is to outperform.. rather than dumping the whole position out if the sector bullish percent reverses down into O's.. or Restaurant sector. (and RS charts for them).exe/D:\foxa.com&lesson=5&page=6 (1 of 5) [4/19/2001 9:25:07 PM] . We developed these DWA indexes. Again.wuniv?email=neowaver@hotmail. but these DWA Sector RS charts will be especially helpful for those sectors which don't have an exchanged based sector index. So if you owned INTC.149. the RS for the Semiconductor group remains very strong. instead of selling out the entire position. The Semiconductor bullish percent reversed down from high levels. you want to focus your buying (or owning of stocks) in those sectors which are in a column of X's on their RS chart .

or for that matter given market class . You can see the weakness in March and April wit the percent od stocks in this universe falling from 52% to a low of 28%.wuniv?email=neowaver@hotmail. which are in a column of X's on their RS charts.PnF University We have developed a chart that will show you the percent of stocks in a given sector. To the right we show you one of these charts on the OTC market.exe/D:\foxa. Percent of NYSE stocks whose RS is in X's (RSXNYSE) 58 56 54 52 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 | | | | | | | | | | | 3 ------------+-+---X O--X | | X O X O | 2 O A O | 1 O X C | X O ------------O +---C O--5 | B 4 7 6 | A O X 8 X 9 O 6 O 1 O 7 O X ------------9 C O X O-XO X 4 X O A X O | O | | | | | ------------+-+---+-------| | | | | | | | | | | | B | ----------X O -----A O X 5 | 6 | 7 X ----------+-8 6----| 9 5 | O 3 | A X | 3 X ----------+-4----| | | | http://208.149.. At the time the OTC RSX chart was reversing down this chart reversed up. We plot this percent like we do our other bullish percents. from 0% to 100% using a 6% reversal to change columns. Percent OTC stocks whose RS is in X'S (RSXOTC ) Look at the RSXNYSE chart (those stocks on the NYSE which are in X's on their RS charts). Optionable Universe or OTC.NYSE. A clear sign of the divergence we saw in these to markets after the first quarter of 2000.com&lesson=5&page=6 (2 of 5) [4/19/2001 9:25:07 PM] .108.63/cgi-bin/foxweb.. This chart shows you the percent of OTC stocks which are in a column of X's on their RS charts.

com&lesson=5&page=6 (3 of 5) [4/19/2001 9:25:07 PM] . The RSX tool will be a bit more "responsive" or "active".. These charts we denote with RSP then the first four letters. | | | | Percent of stocks on an RS buy signal. while the RSP will be a little slower because the RSP chart is the percent of stocks on an RS buy signal. and as you know it takes longer to give an RS signal change.149.wuniv?email=neowaver@hotmail. You will be amazed the story they tell you. At the top of the page that comes up.63/cgi-bin/foxweb. In time you will become adept at evaluating them. you can click on either "RS Pos" or "RS Col X" to access the list. but stand back and take some time to look through these charts using the database site. Using the Semiconductor Index (RSPSEMI) 60 58 56 54 52 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 ------------+----| | 1 | X A | C ----------X O X ---9 O B X C X X O A X O X ----------8 O 9 ----X 1 7 O X 3 X O 6 ------------O 2 ----6 1 O X O C O X ------------7 X ----9 | | | Now this all may sound a bit confusing.108. and this will aid you in determining http://208. this indicator takes longer to develop.PnF University 14 12 We take it a step further and keep a chart that shows the percent of stocks in a given group that are on an RS buy signal. or you can specifically pull the chart up by using RSX or RSP then the first four letters. such as RSPSEMI or RSPOTC. than to just reverse up or down on stocks' RS chart.. Both of these indicators are longer term however.exe/D:\foxa. The RSX and RSP charts can be found under the link entitled "DWA Technical Indicator Report" in the bottom-left quadrant.

108.exe/D:\foxa. Remember.com&lesson=5&page=6 (4 of 5) [4/19/2001 9:25:07 PM] .63/cgi-bin/foxweb. Sector (Index) Relative Strength Chart 2.it is one of the most important tools at your disposal.. DWA Sector Index (Equal Weighted) RS Charts 1) Sector Index Relative Strength Readings Symbol Index AUX BIX BKX BMX BTK CEX CWX DOT DRG DUX FPP GAX GOX HCX HMO HUI HWI IIX INX IUX MSH NWX OIX OSX PSE RLX RMS RXH SOX TRAN TRX 2) DWA Sector Index (Equal Weighted) RS Charts.PnF University sector relative strength. The bottom line. Healthcare Hosp DWAPREC PHLX Semiconductor DWAPROT Dow Jones Trans Avg DWAREAL S & P Transportation Index DWAREST DWA Aerospace Index DWA Auto Index Dorsey Wright Bank Index Dorsey Wright Biomedics Dorsey Wright Building Dorsey Wright Business Dorsey Wright Chemical Dorsey Wright Computer Dorsey Wright Drug Index Dorsey Wright Electronics Dorsey Wright Electric Util Dorsey Wright Financial Dorsey Wright Food Index Dorsey Wright Forest Prod Dorsey Wright Gaming Index Dorsey Wright Gas Utility Dorsey Wright Healthcare Dorsey Wright Household Goods Dorsey Wright Internet Dorsey Wright Insurance Dorsey Wright Latin America Dorsey Wright Leisure Dorsey Wright Machine Dorsey Wright Media Index Dorsey Wright Non Ferr Metals Dorsey Wright Oil Index Dorsey Wright Oil Service Dorsey Wright Precious Metal Dorsey Wright Protect/Safety Dorsey Wright Real Estate Dorsey Wright Restaurant http://208. Symbol Sector Index Cboe Automotive Index DWAAERO S & P Banking Index DWAAUTO PHLX Bank Sector DWABANK PHLX Computer Box Maker DWABIOM Amex Biotechnology DWABUIL S & P Chemical Index DWABUSI Cboe Computer SFTWR DWACHEM PHLX the Street. Different Sector Relative Strength Tools: 1.Com Net In DWACOMP Amex Drug Index DWADRUG Dow Jones Utility Average DWAELEC PHLX Forest & Paper Produc DWAEUTI Cboe Gaming Index DWAFINA Goldlinx Intl Inc DWAFOOD S & P Healthcare DWAFORE Amex M. use the tools correctly. It doesn't guarantee you will get the outcome you always want or expect. all you can do is stack as many odds in your favor as possible. Reit DWAOILS Amex M.S. Healthcare Servi DWAGAME Amex Gold Bugs Index DWAGUTI Computer Hardware Index DWAHEAL Inter@ctive Week Index DWAHOUS Cboe Internet Index DWAINET S & P Insurance DWAINSU Morgan Stanley High Tech 3 DWALATI NWX .149.Amex Networking Indx DWALEIS Cboe Oil Index DWAMACH PHLX Oil Service Sector DWAMEDI Pse High Tech Index DWAMETA S & P Retail Index DWAOIL Amex M.S. but over time you will be a winner.S. do not ignore sector relative strength .wuniv?email=neowaver@hotmail.. then make a decision.

108.149...wuniv?email=neowaver@hotmail.63/cgi-bin/foxweb.PnF University TXX UTIL UTY XAL XAU XBD XCI XNG XOI XTC Cboe Technology Index Dow Jones Utility Avg PHLX Utility Sector Amex Airlines Index PHLX Gold & Silver Index Amex Broker Dealer Amex Computer Index Amex Natural Gas Amex Oil Index Amex Telecom DWARETA DWASAVI DWASEMI DWASOFT DWASTEE DWATELE DWATEXT DWATRAN DWAWALL DWAWAST Dorsey Wright Retail Index Dorsey Wright Saving & Loan Dorsey Wright Semiconductor Dorsey Wright Software Ind Dorsey Wright Steel Index Dorsey Wright Telephone Dorsey Wright Textile Index Dorsey Wright Transport N/A Dorsey Wright Wall Street Dorsey Wright Waste Index Next http://208.com&lesson=5&page=6 (5 of 5) [4/19/2001 9:25:07 PM] .exe/D:\foxa.

69/cgi-bin/foxweb.com&lesson=5&page=7 [4/19/2001 9:25:26 PM] .108. Perfect Market Timing vs Perfect Sector Timing DWA Individual Sectors.PnF University Welcome: Lesson 5: Wrap Up Sector rotation is a very important aspect to investing because it unveils opportunity in the market which is usually unrecognized until it is too late. Sector Bell Curves Examples Part 2: Sector Relative Strength Sector Relative Strength Intel Example Sector (Index) RS Chart DWA Sector Index RS Charts We will now test you to find your comprehension of the subjects discussed in Lesson 5. Part 1: Sector Bullish Percents. Next http://208. PnF allows you to recognize opportunity when it is the hardest to spot.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.149. Often the media "hypes" a particular sector when it is already over bought and at its peak.

149. http://208..108. At this point what would you do with the stocks in your portfolio that belong to this sector? 80 78 76 74 72 70 68 66 64 62 60 58 56 54 52 50 48 46 44 42 40 38 36 34 32 X X X 3 X X X X X X 2 X X ----------+-------------+---------O | | O | | 4 | X | X 5 | 9 O | 4 O O X ------+-------X O --+-----X O O X O | X A | X O O X O | 7 O | X O X 6 | X O | 3 O O | X O X | X ----7 ----+-------X O X O ----X O X X O X O X O X B O X 6 O X O X O 9 O X O 3 O X O C O X X O X O X 1 X O 5 B X O 1 O X ------O X A +-O X 4 X O X O X O 2 O X | O O X O O X O X O X | O O O X O X | | O O 8 | | ------O X --+-------------+------O X | | O | | | | | | Buy as many good fundamental stocks as you can.62/cgi-bin/foxweb.exe/D:\foxap.email=neowaver@hotmail. Bull Confirmed Market Bear Confirmed Market Bull Alert Market Bear Alert Market Bull Correction Market Bear Correction Market 1: 30 28 26 24 22 20 18 16 O O O O X O X O X O 2: 3: 4: 5: 78 76 74 72 70 68 66 64 62 60 50 48 44 42 40 39 38 37 36 35 34 58 56 54 52 50 48 46 44 42 40 38 36 34 32 30 60 58 56 54 52 50 48 46 44 42 X X X X X X X O O O O X X X X O X X O X X O X X X X X X O X O X O X O X O X O O X O X O X O X O X X O X X O X X O X 6: X X X X X X X X O O X O X O O X O O O O 70 68 66 64 62 60 58 56 54 52 50 X X O X O X O X X X X O X X O X X O X X O 2) Here is a chart of the Aerospace Airlines sector.html (1 of 3) [4/19/2001 9:25:46 PM] .com&lesson=5&doc=test.PnF University Testing for Lesson 5 1) Match the Risk levels with the description and chart..

.exe/D:\foxap.PnF University Boycott the airline industry and vow to take trains and boats for the rest of your life.email=neowaver@hotmail. Will this Bell Curve move more to the right or to the left from here? Right Left Can't tell http://208.108. Wait for the sector to move below 30% to find the really good deals. Looking at this Bell Curve. What would you do with stocks in this sector here? 80 --------------+-------------+-----------78 | | 76 | | 74 X | | 72 4 O | | 70 ----X O ------+-------------+-----------68 X O | | 66 X O | | 64 3 5 | X | 62 X O | X X O | 60 ----X O ------+-X O 5 O ----+-----------58 X O C | X O X O | 56 X O X O X 2 X O | X 54 X X 6 X O X O X O X | X O 52 1 O X O X O X O X 6 X O | X O 50 X O 2 O ----X O X O X O X O +---X 4 ----48 X O X O X O 1 O X O O | X O 46 O X O X O X 3 4 O X X O 44 O 7 B O X O X 8 1 O X O 42 O X O O X O X O X O 40 -------O ----X +---O ------O X O 3 O ----38 O X | 9 C 2 X O 36 8 X | O X O X O 34 O X | O X O 32 O X | O B 30 -------O ----X +-----------O X ----------28 O X | O X 26 O X | O | 24 O X X | | 22 O X O X | | 20 -------O X O X +-------------+-----------18 O X A X | | 16 9 X O | | Liquidate all issues because a sell signal is coming up. Consider buying strong stocks in this sector. Evaluate your stocks for weak issues that may be in trouble and either sell or hedge them..html (2 of 3) [4/19/2001 9:25:46 PM] ..149.62/cgi-bin/foxweb. the market is: Normal Oversold Over bought b. Still vowing never to fly again. 4) Answer the following questions with regard to this Bell Curve: wast TRAN TEXT reta REAL mach wall stee prot semi meta tele SAVI heal inet prec EUTI comp SOFT drug biom medi BANK 0-14% 16-20% 22-26% leis lati fina busi BUIL elec auto 28-32% oils rest asia aero 34-36% hous insu fore 38-42% GUTI FOOD GAME euro CHEM oil 44-46% 48-52% 54-56% 58-62% . 3) Same sector. a..com&lesson=5&doc=test. Wait for a reversal up to buy more stock.

Select One - ) = Sector RS Reading Score Test Submit http://208.108. Not yet. drug stocks have been slammed by the media so it has to be time to buy. ( .you can buy stocks.. would you consider buying stocks in this sector? Yes. Yes. No. it isn't below 20% yet.149.html (3 of 3) [4/19/2001 9:25:46 PM] .Select One - / . I'd have to see the actual chart to see where it normally resides..email=neowaver@hotmail. the sector is in X's below 30% .exe/D:\foxap. The sectors in this Bell Curve are predominantly: In X's In O's d. the sector is still in O's and has not reversed up yet.com&lesson=5&doc=test. whether weak or strong.Select One - )( .62/cgi-bin/foxweb. Sector Relative Strength. Looking at the Drug sector (drug) on this Bell Curve. Complete the formula for the Sector RS reading by selecting the correct entry for each of the fields.PnF University c.

mail=neowaver@hotmail..108.exe/D:\foxapps\f.html [4/19/2001 9:26:06 PM] .65/cgi-bin/foxweb..com&lesson=5&doc=exercises.149.PnF University http://208.

108.149.html [4/19/2001 9:26:26 PM] ..62/cgi-bin/foxweb.com&lesson=5&doc=questions..exe/D:\foxapps\f.mail=neowaver@hotmail.PnF University http://208.

click on the questions button (?) and it will be answered shortly (within 48 hours).149. You will see how important it is to understand each individual concept combined with the larger picture to make informed decisions towards your investments. Rules of investing and trading examples.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. if you have any questions.67/cgi-bin/foxweb. We will show you how to combine different aspects of the market to assess risk for trades or long term investing.108. Everything you have learned in the previous 5 chapters will come together here. As with any chapter. You can also look at the link for questions above and see if the same question has already been answered. Message Board Go To: Lesson 6. Part 1 http://208. Test yourself at the end of the chapter to sharpen your skills.PnF University Lesson 6 Introduction Here we put it all together.com&lesson=6&page=1 [4/19/2001 9:26:46 PM] .

it is the old saying "a picture paints a thousand words" . Many of you are probably well aware of this approach. we review all of our Technical Indicators in the Daily Equity Report.. Hopefully this will help you make sound. INITIATING NEW POSITIONS: A FOUR STEP CHECKLIST As we have said many times in the past. we designed a four step process that you should go through when initiating new positions. go through and write down the Pro's and Con's (technical picture) of each stock you are considering for purchase.wuniv?email=neowaver@hotmail. in writing. We recommend that you literally go through and evaluate each stock you are considering buying. High-Low Index and other daily-kept indices intra-week in the Market Comment section when changes occur.those in a column of X's on their Sector Bullish Percent chart. Part1: Initiating Positions . the positives and negatives of each stock. clear-cut decisions. yet we thought it would be a good review for you. Determine how a sector is doing relative to the S&P 500.com&lesson=6&page=2 (1 of 2) [4/19/2001 9:27:10 PM] . will help you develop an effective game plan. Option Stock Bullish Percent.108. 10 Week and other indicators to determine if you play offense or defense. Ideally. High-Low Index. In addition.exe/D:\foxa. STEP TWO: What to Do: Determine which sectors suggest offense (and what their respective field position is) .The Four Step Check List.you will be able to clearly see before your eyes. In light of that. you want to invest in sectors which http://208.each step is listed.Four Step Check List Part 2: Stock Selection Criteria/Techniques Part 3: Summary Part 1: Initiating New Positions . It is best to stay with those sectors that are bullish and below 50%. STEP ONE: What to Do: Use the NYSE Bullish Percent. we have supplied you with a checklist of sorts to help you accomplish Step Four more easily. Basically. How to Do It: Every Thursday. The checklist below can help you accomplish this.PnF University Timing the Trade Now we put the pieces of the puzzle together. combining what you have learned in the previous chapters. The following steps. Below we list the four step checklist -.63/cgi-bin/foxweb. without emotion. Truly successful investors have some guidelines they adhere to religiously.149. You can also follow the market indicators using our DWA Internet Database/Charting site.. we recommend a top-down approach to investing. Once you have determined a fundamentally sound inventory to work from. OTC Bullish Percent. given the recent changes in the market indicators. then we list ways that you can accomplish each step. In addition to that. we feature important changes in the Option Stock BP.

63/cgi-bin/foxweb. try to adhere to this four step checklist when initiating new positions.108. In this step you are determining "What" (specific stock) to buy. Stick to the plan. Read the Daily Equity Report each and every day as we present a multitude of technically sound ideas each day. Separate your fundamental list (inventory) by sector. Part 2 http://208. those that demonstrate the best technical picture. Go To: Lesson 6. This will narrow your (fundamental) inventory down to those issues with the best probability of moving higher. Use the DWA Internet Database site . the S&P Outlook STARs. and present a good risk-reward ratio. so you could easily keep a "fundamental favorites" list using that function. something your competition doesn't have. Not every trade will work out. Our database program allows you to set up portfolios. have positive relative strength versus the market and their specific sector. By paying attention to the market and the sector risks (opportunities). and then coupling the fundamentals with the technicals.149. we update the Industry Group Bullish Percent readings. As well.wuniv?email=neowaver@hotmail.com&lesson=6&page=2 (2 of 2) [4/19/2001 9:27:10 PM] . you should ideally focus on those stocks which are in an overall uptrend (trading above their bullish support line). In summary. in Thursday's report we do a summary of all the changes in the Index Relative Strength readings.. the "Search/Sort Query Function". are on a point & figure buy signal on their trend chart. but this gives you a definable "Game Plan". When trying to narrow your list down using Dorsey. and present the Sector Bell Curve. Then keep a Point & Figure chart on those stocks you deem the very best fundamentally (again separating them by sector). The sector bullish percent charts and the Index RS charts are available for viewing via our internet site. too. or some other fundamental sorting method you deem reliable. have positive momentum.. then manage the outcome. In this step you are determining "When" to buy a specific stock. STEP FOUR: What to Do: Review fundamentally sound stocks on a technical basis to cull out those controlled by demand.in particular. Wright Research.PnF University are outperforming the SPX (are in a column of X's on their RS chart). Value Line 1's & 2's. Use any number of sources available to determine those stocks deemed fundamentally sound. make your decision. How to Do It: Every Thursday.exe/D:\foxa. your odds of success should increase. How to Do It: Use your firm's Recommended List. This allows you to see where each sector lies and what its status is. STEP THREE: What to Do: Create and maintain an inventory of stocks to work from. How to Do It: Keep your own charts (update them daily by hand).

By sticking with charts that have patterns showing demand in control your chances of success are greater. The first two steps.108. Resistance. We have discussed many in this university such as the Bullish Catapult and the Bullish Triangle. Patterns.. Fine Tuning Your Entry Point -. market divergences. You can consider toe-dipping when you start to see the sector up tick. A http://208.64/cgi-bin/foxweb. A stock that violates a trend line is standing up and shouting "Look at Me!" If you own a stock that has violated its bullish support line you MUST evaluate it. We use weekly momentum predominantly. placing emphasis on positive RS sectors. watch closely for a reversal up and be ready when it does.exe/D:\foxa. especially if it has been negative for a long time. A trader will evaluate a stock differently than an investor. 1: The PnF Chart. Constantly stay abreast of where the particular sectors reside with respect to their field position.(A closer Look at Step 4) We discussed the 4 step proccess and will now take a closer look at step 4. working within a group of fundamentally sound stocks. When evaluating a chart watch for areas of support and resistance. Couple this with sector RS. The trader may only be looking for a couple points while the investor has a longer time horizon in mind. If a sector is below 30%. 2: Relative Strength. is left to you. The best combination for RS is positive (buy signal) and in a column of X's.Daily. Change in Trend. With all of the fundamentally sound companies available for you to invest in.PnF University Part 2: Stock Selection Criteria/Techniques. If you are considering a long position you want to make sure the stock has not risen to a resistance level. Finally. Look for pullbacks to support as buying opportunities. This is evaluating the individual stock on a technical basis. but daily is very helpful for short term trading.Momentum: Following weekly momentum is very helpful when timing trades. why buy one that dosen't have a chart showing demand in control. 3. Trend line violations are very significant and should not be ignored. and monthly is helpful for longer term changes in direction. Keep track of those stocks that hold up well despite sector weakness. Sector Rotation. Support. At least insure the stock is rising in a column of X's on its relative strength chart. 4: Momentum . Watch for changes in signals. Important to watch for changes from negative to positive. Before you can evaluate a stock you must first identify your investment goals.149. Big Bases. and for reversals. .wuniv?email=neowaver@hotmail. Check the relative strength chart to be sure the stock is currently outperforming the broad market. Take note of any changes in status. The third step.com&lesson=6&page=3 (1 of 2) [4/19/2001 9:28:25 PM] . You may choose to give it additional room or you may choose to sell it.. watch the chart for patterns that have been successful in the past. but whatever you do make sure your game plan is in place and updated. Monthly. Be aware of nuances for particular sector bullish percents. Weekly. evaluating the Markat and Sector were covered in previous chapters.

PnF University

positive weekly momentum suggests higher prices and negative momentum
suggests lower prices. Weekly momentum is a shorter term timing tool as changes to
positive or negative weekly momentum last 6 to 8 weeks on average. We can
calculate the number at which momentum will change to positive or negative. If the
price of the stock is below or above the cross point the momentum changes. A price
(last) that is lower than the cross number turns the momentum negative. A price that
is higher than the cross number turns the momentum positive.
5: Trading Bands - 10 day and 10 week. These calculations give you an idea of the
overbought or oversold nature of a stock. The weekly distribution uses 10 weeks of
data. It is displayed on the charts using TOP, MED, and BOT at the corresponding
levels. Top equates to 100% overbought and BOT is 100% oversold. Med is the
midrange where we say the stock is neutral (normal) on its distribution.
Wkly Distribution

+ + +
|
+
+
|
+
+
|
+
+
|
+
+
|
+
+
|
+
+
|
+
+
|
+
-------------------|------------------100% Oversold
Normal 100% Overbought
6: Gaps Down. News items or earnings reports come out that cause a stock to drop
sharply. Often times it will get an initial bounce back up. Watch to see if stock has
pulled back to an area of good support. This situation often provides quick trade. You
can use the 18 O's down link to find potential ideas.
+

7: Risk-Reward: Has the stock pulled back? Identify the stop point, what the Price
Objective is, where the resistance lies, and if the stock is close to support. You want
to know what the risk is if the trade does not work out. You must be able to handle
the worst case scenario.
Go To: Lesson 6, Part 2

http://208.149.108.64/cgi-bin/foxweb.exe/D:\foxa...wuniv?email=neowaver@hotmail.com&lesson=6&page=3 (2 of 2) [4/19/2001 9:28:25 PM]

PnF University

Part 2: Stock Selection Criteria/Techniques.
Fine Tuning Your Entry Point -- (A closer Look at Step 4 cont.)
8: Taking Profits. Have an idea of what you are looking for going into the position.
This relates to Risk Reward mentioned on the previous page. Have a sell discipline,
be willing to take partial profits. Sell a third once up 30%. Sell a second third once up
50%. Hold the last third until technical picture dictates. This allows you to take money
of the table but at the same times lets the position run.
9. Stop Points - When a trade doesn't work out. Know your stop point and respect it.
Be willing to take action, don't become paralyzed. You are willing to take small
profits, also be willing to take small losses.
10. Review Positions. Constantly review the stocks you own. Raise the stop points.
Evaluate the reasons why you bought the stock, have those reasons changed?
11. Don't fall in love with a position, is there something better? An account has
limited capital so ask yourself if the position is the best one to be in here, i.e. did you
buy the stock for a trade then it became a long term investment? Are you tying up
capital that can be put to better use? This goes hand in hand with reviewing your
positions regularly. Don't get sucked into "the fundamental trap" - has the technical
picture deteriorated.
Go To: Lesson 6, Summary

http://208.149.108.65/cgi-bin/foxweb.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.com&lesson=6&page=4 [4/19/2001 9:30:46 PM]

PnF University

Lesson 6 Wrap Up

This university has been a good starting point to learn about the Point and
Figure Methodology. However, be sure to get a copy of Tom's book on Point
and Figure charting. It is the most complete resource on the topic. Over these six
lessons we have covered the PnF methodology in detail, from the basics of how
to chart to the details of how our market indicators are created and followed.
Lesson six provided details of how you can take what you have learned and
create a playbook for suscessful investing. It is important to note that this
methodology is not a science but an art. To be good at this methodology
requires pratice, and a lot of it. Only by constantly evaluating charts will you
refine your skills and become a true craftsman. As we like to say, once you find
religion you have to attend church.
The link in the lower right will take you to a case study. In the study you will be
given indicator data as well as charts on stocks. You will be given $200,000 of
pretend money to make investment decisions. The charts and data are real
although the names have been changed. at the end we will tell you when and
who you were investing in. Be sure to read the directions and have fun!
Go to: Case Study

http://208.149.108.6/cgi-bin/foxweb.exe/D:\foxapps\fwuniv?email=neowaver@hotmail.com&lesson=6&page=6 [4/19/2001 9:31:17 PM]

You will be given $200. The charts and data are real although the names have been changed. It is important to note that this methodology is not a science but an art. Over these six lessons we have covered the PnF methodology in detail. and a lot of it. As we like to say.com&lesson=6&page=6 [4/19/2001 9:31:41 PM] . at the end we will tell you when and who you were investing in.61/cgi-bin/foxweb. It is the most complete resource on the topic.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. be sure to get a copy of Tom's book on Point and Figure charting.108. To be good at this methodology requires pratice.149. In the study you will be given indicator data as well as charts on stocks. The link in the lower right will take you to a case study.PnF University Lesson 6 Wrap Up This university has been a good starting point to learn about the Point and Figure Methodology. once you find religion you have to attend church. However. Be sure to read the directions and have fun! Go to: Case Study http://208. Lesson six provided details of how you can take what you have learned and create a playbook for suscessful investing.000 of pretend money to make investment decisions. from the basics of how to chart to the details of how our market indicators are created and followed. Only by constantly evaluating charts will you refine your skills and become a true craftsman.

at the end we will tell you when and who you were investing in. Over these six lessons we have covered the PnF methodology in detail. In the study you will be given indicator data as well as charts on stocks. You will be given $200.PnF University Lesson 6 Wrap Up This university has been a good starting point to learn about the Point and Figure Methodology. As we like to say. Only by constantly evaluating charts will you refine your skills and become a true craftsman. be sure to get a copy of Tom's book on Point and Figure charting. The link in the lower right will take you to a case study.com&lesson=6&page=6 [4/19/2001 9:31:57 PM] . However.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. and a lot of it.000 of pretend money to make investment decisions.64/cgi-bin/foxweb. Be sure to read the directions and have fun! Go to: Case Study http://208. It is important to note that this methodology is not a science but an art. once you find religion you have to attend church. The charts and data are real although the names have been changed. To be good at this methodology requires pratice.149. Lesson six provided details of how you can take what you have learned and create a playbook for suscessful investing.108. It is the most complete resource on the topic. from the basics of how to chart to the details of how our market indicators are created and followed.

PnF University http://208.149.61/cgi-bin/foxweb.com&doc=help.108.html [4/19/2001 9:32:30 PM] .exe/D:\foxapps\fwuniv?email=neowaver@hotmail.

You are now logged on as Daniel R Beteta Just click any of the links on the left to continue. DWA has a two week free trial offer that you may use while taking these classes and this will give you access to all the materials discussed in the lessons.67/cgi-bin/foxweb. Buy.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. some graph paper is useful for charting practice. Amazon. Other investment or charting techniques will also be discussed and experts in those particular fields will be invited to conduct those classes. right here on the web. Live Online Classes: Coming soon DWA will have live online classes through a bulletin board posting system. Throughout the PnF University. Registering for University. Check here for class schedules coming soon. Now you can learn one of the simplest yet truest forms of technical analysis easily. Each class will be saved in archive and can be reviewed at any time.html (1 of 2) [4/19/2001 9:33:04 PM] . Sit back. you will have an important technical analysis tool to enhance your investments and portfolio performance. We will update here any new features available and any upgrades that have been added. Page 6 by Clicking Here Recommended Materials: It is highly advisable to have in your possession a copy of Tom Dorsey's book "Point and Figure Charting" while taking these classes. His book has many additional examples and explanations available. You may order his book through the DWA Store. You may continue at Lesson 6. will be scheduled to discuss Point and Figure and different investment tactics.com.PnF University Welcome to the Dorsey Wright and Associates (DWA) Point and Figure University! DWA is dedicated to the education of investors in the Point and Figure Methodology. By the completion of this interactive University. Archived Online Classes * DWA chat room http://208. relax and enter the world of Point and Figure Charting.108. A complete online classroom will take you from the very beginning chart basics into advanced charting techniques. Tom Dorsey along with guest speakers.com&doc=index.149.com or your local book store. Click here for subscription information--Subscription Services University Updates: Some parts of this University are still being developed. Traders Library. Also. your progress and overall understanding will be evaluated and tracked with assistance in areas of weakness.

Anecdotes: This section will grow with time as Tom Dorsey and other DWA analysts describe their experiences and personal lessons learned during their investment careers. Exercises: A section that provides additional exercises to sharpen your skills. Each lesson progresses into the next. Your questions will be answered within two business days. Technical Help: Contact DWA with any technical problems regarding the University.com&doc=index. We are always interested in comments or suggestions. Please email us and tell us what you think! For technical difficulties please refer to the email provided in the Help menu. FAQ: Here we will place Frequently Asked Questions about Point and Figure Topics. Help School Marm: Each lesson will have a help button available. The database will process your answers determining any weak areas to be reviewed again. http://208. how it began and examples.exe/D:\foxapps\fwuniv?email=neowaver@hotmail. Tests: At the end of each lesson there is a brief test covering the materials in that particular lesson.PnF University How to use this University: Navigation: Located on the left hand side are the Lesson buttons. Email addresses provided. Questions: Previous questions will be posted here and you may find an answer to any questions you have in this section.108. Start with Lesson One and work your way through to the last lesson available. History: A History of Point and Figure Charting. enabling you to email a question to the "School Marm" of the University. it is important to finish one lesson before continuing to the next.149.html (2 of 2) [4/19/2001 9:33:04 PM] . Start the University! Copyright Dorsey Wright and Associates and ready to go. an email system. Glossary: Description of terms used in the University are available here.67/cgi-bin/foxweb.

You must enter a valid email address. Account Type What's the difference? Individual or Registered Professional Desired Logon Name Real First Name Real Last Name Email Be Sure! Company Address 1 Address 2 City http://208. ● Please do not make up names. Please write them down. ● When you enter your User Name.6/cgi-bin/foxweb.exe/d:%5Cfoxapps%5Cfwlogon?register=yes&lang= (1 of 2) [4/19/2001 9:33:59 PM] .108. it must be Exactly like you will enter it to access the data.149. . Your password will be emailed to you so check your email address! ● If you enter "John Smith". ● Use "N/A" if necessary. ● We cannot look up passwords for you. ● All information is used for internal purposes and is not released to any third party.Register For An Account Please Enter Your Registration Information for a 14 day Free Trial All fields must be filled in. you cannot log on later as "johnsmith".

149.00 EXE Support Library for Windows 15:31:40 15:31:41 http://208.108.00.8167. please Register or Subscribe Visual FoxPro 06.S.) Select a State Zip/Postal Code Country United States Phone Fax Where did you hear about DWA TV P&F Book Radio Net Search Friend/Broker Jagnotes Trader's Expo Other (fill in below) Hit this button only Once.6/cgi-bin/foxweb.exe/d:%5Cfoxapps%5Cfwlogon?register=yes&lang= (2 of 2) [4/19/2001 9:33:59 PM] .Register For An Account State/Province (Do not select if not U.

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